India's retail inflation is projected to have risen significantly in December 2025, primarily due to a broad-based increase in food prices, according to a recent forecast by Union Bank of India.
Inflation Projections and Key Drivers
The bank estimates that the Consumer Price Index (CPI) inflation for December 2025 likely climbed to 1.66 per cent, a notable increase from the 0.71 per cent recorded in November. The official data release from the government is scheduled for January 12, 2026, or the next working day if that date is a holiday.
Despite this sequential rise, the inflation rate is anticipated to remain comfortably below the 5.2 per cent level seen in December 2024. This is the case even as the favourable base effect, which had previously helped keep numbers low, begins to diminish.
Food and Core Inflation Trends
A key component, food inflation, is expected to stay in negative territory but improve from November's figure. The Union Bank of India report projects food CPI at -1.19 per cent, compared to -2.78 per cent the previous month. This is against a high base of 7.7 per cent from December 2024.
The assessment, based on ground-level price data from the Department of Consumer Affairs, indicates that month-on-month food prices rose across most categories. A notable exception was milk. Tomatoes saw the sharpest price gains, attributed to early winter boosting demand while October rains disrupted supply chains.
Meanwhile, core inflation, which excludes volatile food and fuel items, is projected to rise to 4.68 per cent. This increase is largely attributed to a renewed rally in gold prices during the month of December.
RBI's Stance and Macroeconomic Outlook
With inflation largely under control, the Reserve Bank of India (RBI) in December 2025 revised its CPI inflation forecast for the fiscal year 2025-26 downwards to 2.0 per cent from an earlier estimate of 2.6 per cent.
The central bank's quarterly projections are as follows:
- 0.6 per cent in Q3 of FY26
- 2.9 per cent in Q4 of FY26
- 3.9 per cent in Q1 of FY27
- 4.0 per cent in Q2 of FY27
These figures remain within the RBI's target range. Following the central bank's decision to cut the repo rate by 25 basis points to 5.25 per cent in December, RBI Governor Sanjay Malhotra described the current phase as a "rare goldilocks period" of strong economic growth coupled with very low inflation. This sentiment was supported by data showing nearly 80 per cent of the CPI basket exhibiting inflation below 4 per cent.
The Union Bank report did, however, sound a note of caution. While food inflation is expected to remain largely negative in the third quarter of FY26, it highlighted potential upside risks from factors like unseasonal winter rains and possible supply chain disruptions.
