India's retail inflation, measured by the Consumer Price Index (CPI), is projected to have experienced a slight uptick in December 2025, according to a report from Union Bank of India. The inflation rate is estimated to have climbed to 1.66%, a noticeable increase from the 0.71% recorded in November 2025.
Food and Core Inflation Trends
The marginal rise in the overall inflation figure is primarily attributed to strengthening prices across most segments of the food basket. However, despite this monthly increase, food inflation likely remained in negative territory for December. The Union Bank of India report projects food CPI at -1.19%, an improvement from -2.78% in the previous month, but still negative due to a high base effect from December 2024.
The report highlighted that month-on-month food prices gained momentum, with tomatoes seeing the highest price gain. This was driven by an early onset of winter boosting demand, while supply was impacted by October rains. The bank cautioned that while food inflation is expected to stay negative in the third quarter of the fiscal year 2025-26, risks remain from unseasonal winter rains and potential supply chain disruptions.
Meanwhile, core inflation, which excludes volatile food and fuel items, gained momentum, likely rising to 4.68%. This acceleration was fuelled by a resumed rally in gold prices through the month of December.
RBI's Revised Outlook and Policy Action
Reflecting the broader trend of controlled price pressures, the Reserve Bank of India (RBI) in December revised its CPI inflation forecast for the fiscal year 2025-26 downward to 2.0%, from an earlier estimate of 2.6%. The central bank's quarterly projections indicate inflation at 0.6% in Q3 and 2.9% in Q4 of this fiscal year, before rising to 3.9% and 4.0% in the first two quarters of 2026-27, respectively. All these figures remain comfortably within the RBI's target band of 2-6%.
This benign inflation outlook allowed the RBI to announce a monetary easing measure. Following its Monetary Policy Committee meeting that concluded on 5 December 2025, the central bank cut the key repo rate by 25 basis points to 5.25%.
A 'Goldilocks' Economic Phase
RBI Governor Sanjay Malhotra described India's current macroeconomic environment as a "rare goldilocks period", characterised by the dual advantages of high economic growth and exceptionally low inflation. This optimism is underpinned by a broad-based softening of prices, with nearly 80% of the CPI basket showing inflation below the 4% mark.
Governor Malhotra asserted that inflation is likely to remain softer than earlier projections in the coming months. This expectation is supported by factors such as higher kharif crop output, healthy rabi sowing progress, and favourable trends in global commodity prices.
The official CPI data for December 2025 is scheduled for release on 12 January 2026 (or the next working day if it is a holiday), which will provide confirmation of these projections. Despite the marginal rise from November, the December 2025 inflation estimate of 1.66% remains significantly below the 5.2% level recorded in December 2024, even as the base effect diminishes.
