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Informist, Friday, Dec. 12, 2025

 

By Shubham Rana

 

NEW DELHI – India's retail inflation is on the rise again, slowly but surely. CPI inflation rose to 0.71% in November after falling to a record low of 0.25% in October. But the rise in November was in line with expectations and does little to provide guidance on future interest rate trajectory in India.

 

CPI inflation rose in November because of higher food prices and as the favourable base effects wane. Despite the rise, November is just the second month in the current CPI series, which has data since 2014, when retail inflation was under 1%. This was the tenth consecutive month of CPI inflation staying below the Reserve Bank of India's medium-term target of 4% and the fourth time in five months that it was below the lower end of the RBI's target range of 2-6%.

 

"A lot of positive factors have come together for inflation over recent months," said Abhishek Upadhyay, senior economist at ICICI Securities Primary Dealership. "GST (goods and services tax) cuts are seen lowering overall headline inflation by anywhere between 20 to 30 basis points, output gap is still negative despite good growth, and international crude prices are also soft."

 

Consistently low inflation prints this year allowed the RBI's Monetary Policy Committee space to lower interest rates by 125 basis points in 2025, including a 25 bps cut last week to bring the repo rate to 5.25%.

 

The RBI has also lowered its headline inflation forecast for the current financial year by 60 bps to 2.0%. The central bank projects inflation to rise gradually to 2.9% in the March quarter and then to 3.9-4.0% in the first half of FY27.

 

With a low base effect in play, inflation is seen rising to 1.0-1.7% in December, which would take the average for the quarter higher than the RBI's projection of 0.6%. The projected rise in CPI inflation over the next few months is likely to be driven by adverse base effects and higher food prices.

 

Economists estimate that lower GST rates, which came into effect on Sept. 22, have led to a 30-50 bps reduction in CPI inflation. "Bulk of impact of GST cuts was seen in the October print, but there was still some pass through that appears to have happened in the latest print based on goods prices," Upadhyay said. "But from here on the impact should taper off quickly, and most of the pass through is likely done."

 

With inflation projected to rise close to the RBI's medium-term target of 4% in the first half of FY27 and the central bank already cutting the repo rate by 125 bps, the Monetary Policy Committee may have limited scope for further easing. Most economists expect the easing cycle to have ended unless the GDP growth surprises on the downside in the coming quarters.

 

The November CPI print did little to move expectations on either side. The yield on the 10-year benchmark government bond was little changed after the data was released and it ended at 6.59% against 6.58% on Thursday.

 

"This number was extremely important along with the next print. Between the December monetary policy meeting and the next monetary policy meeting, we have no growth data and just two CPI prints, out of which one is in line with expectation almost similar to where the MPC was forecasting," Anubhuti Sahay, head of India economic research at Standard Chartered Bank, said. "Rate cut expectations, while still there, will not get strengthened from here onwards given the CPI in line with expectation."

 

Upadhyay of ICICI Securities Primary Dealership said the latest inflation print has little policy relevance and from RBI's standpoint, growth data as well as global developments should be more salient at this stage.  End

 

Edited by Ashish Shirke

 

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