India’s inflation ticks up in December but remains well below RBI target

India’s consumer price inflation edged higher in December, but remained well below both economists’ expectations and the central bank’s medium-term target, reinforcing expectations that monetary policy will stay accommodative in the months ahead.

Headline consumer inflation rose to 1.33% in December, up from 0.71% in November, according to data released on Monday by the Ministry of Statistics and Programme Implementation.

The reading was softer than the 1.5% increase forecast by economists polled by Reuters.

Food and personal care drive pickup

The ministry attributed the acceleration in headline inflation primarily to higher prices across a range of food and personal care categories.

The increase was mainly due to an “increase in inflation of personal care and effects, vegetables, meat and fish, egg, spices and pulses and products,” the ministry said in its statement.

Despite the uptick in overall inflation, food prices remained in deflationary territory, though the pace of decline moderated.

Food prices fell 2.71% in December, compared with a sharper 3.91% drop in November.

Food items account for roughly half of India’s consumer price index basket, making them a key driver of headline inflation trends.

Rural-urban split shows sharper urban pressures

Inflation dynamics diverged across rural and urban areas, with price pressures more pronounced in cities.

Headline inflation in rural areas rose to 0.76% in December from 0.10% in November.

Food inflation in rural regions, measured by the consumer food price index, improved to a decline of 3.08% from a fall of 4.05% in the previous month.

Urban inflation increased more sharply, rising to 2.03% in December from 1.40% in November.

Food inflation in urban areas also moderated, with prices falling 2.09% in December compared with a 3.60% decline a month earlier.

Fuel and light inflation, however, eased slightly, coming in at 1.97% in December, down from 2.32% in November, offering some relief to household budgets.

RBI outlook remains benign

The inflation data aligns with the assessment of the Reserve Bank of India, which has maintained that price pressures are likely to remain subdued in the near term.

The RBI currently expects consumer inflation to average 2% for the fiscal year ending March 2026, down from a 2.6% forecast it made in October.

For the three months to March, the central bank estimates inflation at 2.9%, rising to 4.0% in the quarter ending September 2026.

The central bank has cautioned that inflation could pick up from January due to base effects.

Overall, the RBI expects inflation to stay comfortably below its 4% target until at least September.

Growth concerns amid low inflation

Persistently low inflation through much of 2025 has had broader macroeconomic implications, particularly for nominal growth.

Record-low price pressures have weighed on nominal GDP growth, raising concerns among policymakers and investors.

India released an early estimate last week projecting real GDP growth of 7.4% for fiscal year 2026, alongside nominal GDP growth of 8.0%.

The nominal figure marked a sharp slowdown from the 10.1% growth forecast in the Union Budget for the same year.

Against this backdrop, the RBI cut its benchmark interest rate to a three-year low in December and signalled that further easing could be possible, citing soft inflation conditions.