India’s Retail Inflation Touches 3 Month High in December 2025

India’s retail inflation moved up to a three-month high in December 2025, reflecting easing food price deflation and rising core inflation pressures. Official data shows that while inflation remains comfortably below the Reserve Bank of India’s target, price trends in precious metals and rural areas have pushed the headline number higher, keeping policymakers and economists watchful.

Why in News?

India’s retail inflation increased to 1.33% in December 2025, up from 0.71% in November. The data was released by the National Statistical Office, marking the last CPI reading under the 2012 base year.

Overall Retail Inflation Trend

• Retail inflation, measured by the Consumer Price Index (CPI), rose to 1.33% in December, making it a three-month high. This increase followed two months when inflation stayed below 1%.
• The main reason was the narrowing of food price deflation as favourable base effects began to fade.
• Despite the uptick, inflation remains well below the Reserve Bank of India’s medium-term target of 4%, with a tolerance band of 2% on either side.
• The December reading keeps inflation supportive of growth while signalling early signs of firming prices.

Rural and Urban Inflation Data

• Inflation trends differed across regions. CPI (Rural) rose to 0.76% in December, compared to just 0.1% in November, indicating rising price pressures in villages.
• Urban inflation increased more sharply to 2.03%, up from 1.4% a month earlier.
• Food prices continued to remain in deflation, with rural food prices declining by 3.08% and urban food prices falling 2.09%.
• However, the pace of decline slowed, contributing to higher overall inflation in both rural and urban areas.

Food Inflation and Base Effect Impact

• Food inflation remained in negative territory in December, but the extent of deflation narrowed to 2.71%, from 3.91% in November. This change played a crucial role in lifting headline inflation.
• Economists point out that favourable base effects, which kept inflation unusually low in previous months, are gradually weakening. As a result, even stable prices can now translate into higher inflation readings.
• This trend suggests that food inflation may normalise in the coming months, pushing overall CPI closer to historical averages.

Implications for RBI Monetary Policy

• Even with the December rise, retail inflation remains below the RBI’s target band, leaving room for policy flexibility. The Reserve Bank of India had cut the repo rate by 25 basis points in December 2025.
• Economists are divided on whether another cut will follow in the February 2026 MPC meeting.
• While some see space for a further cut, others favour a pause until the new 2024 CPI base series and updated GDP data are released, to better assess growth-inflation dynamics.

Consumer Price Index (CPI)

• The CPI measures changes in retail prices faced by consumers and is the primary inflation gauge for monetary policy in India.
• From January 2026, CPI data will shift to a 2024 base year, replacing the long-used 2012 base.

Key Summary at a Glance

Question

Q1. India’s retail inflation in December 2025 stood at:
A. 0.71%
B. 1.03%
C. 1.33%
D. 2.03%