According to official data issued on Monday, retail inflation reached a three-month high of 1.3% in December 2025, up from 0.7% in November, as food deflation decreased and pressure on prices increased for other commodities.
However, it was the fourth consecutive month in this fiscal year that inflation stayed within two percentage points of the central bank’s goal range of 4%. According to Sakshi Gupta, principal economist at HDFC Bank, “inflation edged higher in December as the favourable base effect waned with a pick-up in core inflation.”
The Consumer Price Index (CPI) had an average of 2.2% inflation in 2025, which was the lowest level in 12 years. It was 5.2% in December 2024.
Following a 3.9% dip in November, food prices fell 2.7% in December for the seventh consecutive month.
During its meeting on February 4-6, the Reserve Bank of India’s Monetary Policy Committee (MPC) is expected by economists to halt rate reduction. In December, the MPC lowered the policy rate by 25 basis points to 5.25%.
| Indicator | Value |
|---|---|
| Retail Inflation (Dec 2025) | 1.3% |
| Retail Inflation (Nov 2025) | 0.7% |
| Average Inflation (2025) | 2.2% |
| Inflation (Dec 2024) | 5.2% |
| RBI Target Inflation | 4% ± 2% |
Food & Core
In December, the cost of pulses and vegetables decreased by 15.1% and 18.5%, respectively. Potato prices grew by 34.9%, tomato prices increased by 14.3%, while onion prices decreased by 48%.
Fruits, oils, and meat products saw inflation of over 5%. “In the upcoming months, this will continue to exert upward pressure,” stated Bank of Baroda chief economist Madan Sabnavis. Thanks to a favourable kharif crop season, cereal prices fell into deflation in December at 0.4% after 50 months.
Urban inflation went from 1.4% to 2%, while rural inflation went from 0.1% in November to 0.8% in December.
Nine of the 22 major states and union territories had inflation rates above the national average. Kerala had the highest percentage (9.5%), followed by Karnataka (2.9%), Andhra Pradesh and Tamil Nadu (2.7% each).
The Bottom Line
Although the retail inflation was relatively high, it was well under the range of the RBI. Experts are now speculating whether the RBI will further cut rates or not. Parag Jha, associate director at India Ratings and Research (Ind-Ra), expects a 25 basis point cut at the final policy meeting of 2025 in February, which could be the last easing in the current cycle, while others believe there will be no further rate cuts. The RBI meeting, which is scheduled to be held on 4th-6th February, after the budget, will be a key watch.
