India's Retail Inflation Climbs to Three-Month High in December
Retail inflation in India edged higher during December. It reached a three-month peak. The increase came from narrowing deflation in certain food items. The favourable base effect also faded away. However, inflation stayed below the Reserve Bank of India's tolerance level. This marked the fourth consecutive month under that threshold.
Official Data Reveals Key Figures
The National Statistics Office released fresh data on Monday. It showed retail inflation, measured by the Consumer Price Index, rose by 1.3% annually. This figure was higher than November's 0.7%. It remained well below the 5.2% recorded in December 2024.
Food inflation contracted by 2.7% in December. That represented an increase of 120 basis points compared to November. Rural inflation stood at 0.8% for the month. Urban inflation was notably higher at 2%.
Core Inflation Surges to 28-Month Peak
Core inflation, which excludes volatile food and fuel prices, soared significantly. It hit a 28-month high of 4.8% in December. This was up from 4.4% in the previous month. A sharp spike in gold and silver prices drove this surge.
Gold prices jumped by 69% year-on-year. Silver prices surged even more dramatically by 97%. Excluding these precious metals, core inflation actually moderated. It came down to 2.3% in December.
Key Drivers Behind the Inflation Increase
Several factors contributed to the rise in overall and food inflation during December:
- Personal care and effects saw significant price increases
- Vegetables became more expensive
- Meat and fish prices rose
- Egg costs increased
- Spices showed higher inflation
- Pulses and related products became costlier
The personal care and effects category, which includes gold and silver, recorded a substantial 28.1% increase in December.
Expert Analysis and Future Projections
Rajani Sinha, chief economist at CareEdge ratings agency, provided insights into the inflation trajectory. "Looking ahead, headline inflation is expected to edge higher," she stated. "But it should remain below the RBI's 4% target for the rest of FY26."
Sinha projected average CPI inflation around 2.1% for FY26. For FY27, she expects it to average approximately 4%. These projections are based on the current CPI basket composition.
"The rollout of the new CPI series with a 2024 base year next month will be an important development to watch," Sinha emphasized.
Monetary Policy Implications
From a monetary policy perspective, the recent inflation uptick appears manageable. "The recent uptick in inflation is unlikely to trouble the RBI," Sinha explained. While inflation projections theoretically allow for another 25 basis points rate cut, expectations point toward caution.
"We expect the Monetary Policy Committee to pause and conserve policy space," Sinha said. "They will likely opt to ease only if growth conditions deteriorate significantly."
The central bank continues to monitor inflation trends closely. It balances price stability concerns with the need to support economic growth. The coming months will reveal how these competing priorities shape monetary policy decisions.
