Inflation Rises to 3-Month High of 1.33 in Dec; Remains Below RBI Tolerance Band

 Retail inflation rose to a three-month high of 1.33% in December, mainly due to higher prices of food items, but remained below the Reserve Bank of India's lower tolerance level.

The Consumer Price Index (CPI) based headline inflation was 0.71% in November and 5.22% in December 2024. The inflation stood at 1.44% in September.

The food inflation in December was (-) 2.71% compared to (-) 3.91% in November, and remained negative for the seventh consecutive month.

"The increase in headline inflation and food inflation during the month of December 2025 is mainly attributed to an increase in inflation of personal care and effects, vegetables, meat and fish, egg, spices and pulses and products," the National Statistics Office (NSO) said while releasing the CPI data.

The headline inflation in urban areas was higher at 2.03% compared to 0.76% in rural India.

The retail inflation remained below the Reserve Bank of India's lower tolerance limit for the fourth consecutive month in December.

The government has mandated the central bank to ensure inflation remains at 4%, with a margin of 2% on either side.

According to the NSO data, the top five major states with high inflation during December were Kerala (9.49%), Karnataka (2.99%), Andhra Pradesh (2.71%), Tamil Nadu (2.67%), and Jammu and Kashmir (2.26%).

On the other hand, retail inflation was negative in Assam, Bihar, Haryana, Madhya Pradesh, Odisha, and Uttar Pradesh.

Aditi Nayar, Chief Economist at Icra, said the retail inflation expectedly rose to 1.3% in December 2025 from 0.7% in November, while printing marginally lower than Icra's estimate of 1.4% for the month.

The uptick was driven by narrower deflation in the food and beverages segment, as well as hardening inflation in the miscellaneous items, she said.

"While the December 2025 MPC minutes suggest a possibility of another rate cut in February 2026, Icra believes that a pause is warranted at the current juncture. Besides, it would be prudent to wait and assess the updated CPI (base: 2024) and GDP (base: 2022-23) series, which are due to be released later in February, as these will determine the current growth-inflation mix and aid in forming a fresh outlook," Nayar said.

Dipti Deshpande, Principal Economist at Crisil, said the uptick was driven by food, where deflation narrowed as the high base effect gradually waned.

"Going ahead, CPI inflation is likely to inch up as the base effect for food fades further. We expect CPI inflation to rise to 5 per cent in fiscal 2027, from an estimated 2.5 per cent in the current fiscal as food inflation normalises," Deshpande said.

Paras Jasrai, Associate Director, India Ratings and Research, said the core inflation jumped to a 28-month high of 4.6% in December 2025, as personal care items' inflation touched a fresh high of 28.1%, mainly due to the increase in gold and silver prices.

Overall, the retail inflation dipped to a record low of 0.8% in 3Q FY26, thereby being the second successive quarter of inflation levels being out of the lower tolerance band (4%, +/- 2%) of the Reserve Bank's Monetary Policy Committee (MPC), Jasrai added.

NSO collects price data from selected 1,114 urban markets and 1,181 villages covering all states/UTs.