India's retail inflation is projected to have increased in December 2025, signalling a potential turning point after months of exceptionally low price rises. According to a Mint poll of 15 economists, the Consumer Price Index (CPI) likely climbed to 1.6% in December, up from 0.7% recorded in November.
Drivers Behind the Inflation Uptick
The anticipated rise is attributed to two primary factors. First, the deflation in food prices, which has been in negative territory since June 2025, is becoming less severe. Given that food items constitute nearly 40% of the inflation basket, this easing has a significant impact. Economists note a sequential pick-up in food prices, indicating the deflationary trend is bottoming out.
Second, the favourable statistical base effect from the previous year is fading. Retail inflation had moderated to 5.2% in December 2024 from 5.5% in November 2024, creating a high base that is now waning.
Economists Weigh In on the Trend
Dhiraj Nim, an economist at ANZ Bank, stated that the increase was led by shallower deflation in food and beverages and higher core inflation. Radhika Rao from DBS Bank pointed to sequential firmness in food and precious metals, alongside seasonal pressure on services, as contributing factors.
The poll's projections show a wide range of 1.3% to 2.3% for December. If the median forecast holds true, this would be the fifth instance in the past six months where inflation has fallen below the RBI's lower tolerance band of 2%.
Implications for Monetary Policy and Future Outlook
This December print is expected to be the last month of ultra-low inflation, with prices likely to start ascending from January 2026. Rahul Bajoria of Bank of America cited unfavourable base effects, tobacco price hikes, and rising gold prices as upward pressures ahead.
The projected average inflation for the third quarter of FY26 stands at 0.9%, marginally above the Reserve Bank of India's (RBI) forecast of 0.6%. ANZ Bank's Nim suggested that if this upward drift continues, the central bank might adopt a "little cautious" stance on its inflation outlook.
Furthermore, core inflation, which excludes volatile food and fuel, is expected to stay elevated above 4%, partly due to surging gold prices. The RBI, which has cut interest rates by 125 basis points since February 2025 amid record-low inflation, will now closely monitor these evolving trends.
The official inflation data for December 2025 is scheduled for release on 12 January 2026.
