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Informist, Monday, Jan. 12, 2026

 

By Shubham Rana

 

NEW DELHI – Retail inflation at 1.33% in December brought the curtain down on not just 2025, the year with the lowest inflation in the current CPI series, but on the series itself, which uses 2012 as the base year. Even as a new series is set to be introduced, the December CPI data show price pressures remain well under control, leaving some room for the Reserve Bank of India to support growth.

 

CPI inflation rose to a three-month high of 1.33% in December, mainly because of an unfavourable base effect and record-high gold and silver prices. Food inflation stayed in negative territory for the seventh consecutive month, also a record, helping to keep headline inflation in check.

 

Inflation remained below the RBI's medium-term target of 4% for the eleventh month in a row. CPI inflation was also below the lower end of the RBI's 2-6% tolerance band for the fourth consecutive month.

 

CPI inflation averaged 0.8% in the December quarter, 20 basis points higher than the RBI's forecast of 0.6%. Inflation has declined so far in the financial year 2025-26 (Apr-Mar) due to a favourable base effect and lower food prices, allowing the RBI's Monetary Policy Committee to cut interest rates by a cumulative 125 bps in 2025. For the calendar year, inflation averaged 2.2%, the lowest in the current series, which has data since 2014.

 

CPI inflation is expected to rise further as the base effect turns adverse. The RBI projects inflation increasing to 2.9% in the March quarter and to 3.9-4.0% in the first half of FY27. The central bank expects CPI inflation to average 2.0% in FY26.

 

Core inflation--excluding food and fuel items--rose to a 28-month high of 4.6% in December, driven largely by a surge in gold and silver prices. Gold inflation hit a record 68.7% while silver inflation jumped 97.1%.

 

Economists, however, said elevated core inflation is not a major concern at this stage because price pressures outside precious metals remain subdued. "Due to distortions from elevated gold and silver prices, core-core inflation (which also excludes gold, silver, petrol, and diesel) is a better metric for underlying demand-pull inflation," said Gaura Sen Gupta, chief economist at IDFC FIRST Bank. "Core-core inflation fell to a fresh low of 2.4% in December versus 2.5% in November. Core-core inflation has remained subdued for two years, averaging at 3.2%, indicating the presence of a negative output gap," she said in a report.

 

Economists are also optimistic about the food price outlook. Bank of Baroda Economist Dipanwita Mazumdar said there is no major risk to food inflation in the March quarter "apart from the usual base-driven push factor".

 

With inflation expected to remain benign, it is also likely to rise gradually towards the RBI's 4% target in the coming quarters. This could keep the Monetary Policy Committee from cutting the repo rate further from the current 5.25%, economists said.

 

"RBI is expected to keep policy rates unchanged in February, with headline inflation expected to rise to 4.0% in FY27," Sen Gupta said. "Moreover, it would be prudent to wait for the new base year series of CPI and GDP, which will be released in February 2026."

 

Starting February, the Ministry of Statistics and Programme Implementation will release CPI inflation data using a new series, with 2024 as the base year. The CPI series is being updated after 11 years and will incorporate findings from the Household Consumption Expenditure Survey 2023-24 (Aug-Jul) to better reflect current consumption patterns and expenditure weights.

 

The survey shows that the share of total expenditure on food in rural India fell to 46.38% in 2022-23 from 52.90% in 2011-12. In urban India, the average share of expenditure on food declined to 39.17% from 42.62% over the same period.

 

Currently, food accounts for 39% of the CPI basket, while food and beverages make up for 45.9%. These weights are expected to fall in the new series.

 

"In the current scenario, theoretically, the new CPI series should bring CPI inflation lower. Since our CPI forecast goes from 2% this year (FY26) to 4% next year, our whole assumption of this uptick in inflation is coming from food inflation," Anubhuti Sahay, head of India economic research at Standard Chartered, said. "Now assuming we see similar kind of inflation in food prices but if you're attaching lower weightage then your CPI will have a downside bias."

 

Among other major changes proposed in the new CPI series are the inclusion of rural housing inflation and treatment of public distribution items, both of which could affect headline inflation.

 

The widening of coverage and inclusion of new sources of price data may also influence inflation readings, economists said. Under the new series, the government will collect price data from 1,395 urban markets and 1,465 villages, an expansion of 281 urban markets and 284 villages compared with the current series.

 

The new CPI series will be released Feb. 12, nearly a week after the Monetary Policy Committee meets to decide interest rates. The government will also roll out a new GDP series Feb. 27. With India's economic data set for their first overhaul in more than a decade, the RBI's rate-setting panel may choose to wait before taking any action on interest rates.  End

 

Edited by Rajeev Pai

 

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