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Dec-25 CPI Inflation: Wraps-up as expected; Onto the New Base

14 Jan 2026

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KEY TAKEAWAYS:


  1. India’s CPI edged up further to 1.33% YoY in Dec-25 from 0.71% in Nov-25, marginally below market consensus expectations (1.5-1.6%), marking the fourth consecutive month below the 2% lower band and the eleventh straight month below the 4% target.
  2. On a sequential basis, CPI posted a marginal increase of 0.05% in contrast to the series median contraction of -0.45% MoM usually seen in the month of Dec. 
  3. Annualised Food & Beverages inflation remained in negative territory, with the extent of contraction narrowing to -1.85% in Dec-25 vs -2.78% in Nov-25. 
  4. Fuel inflation eased marginally on an annualised basis, although sequential momentum continued to firm. 
  5. Underlying inflation pressures edged higher, with core inflation rising to a 28-month high of 4.8% YoY, even as precious metals-excluded core remained flat at a series-low of 2.4% YoY.
  6. Although Dec-25 witnessed only a modest easing in vegetable prices relative to the typical winter-season correction, favourable agricultural fundamentals from last year, including a strong monsoon outturn and robust Rabi sowing progress, are expected to keep food price momentum benign into early FY27.
  7. With CPI inflation likely to have bottomed out in Oct-25 and the disinflationary impulse from GST rationalisation having mostly played out, the trajectory is expected to turn upward, on account of currency depreciation, surge in precious commodity prices and policy-supported recovery in domestic demand amid fading base effects. 
  8. Overall, we continue to maintain our FY26 CPI inflation estimate at 2.1%.
  9. A revamped CPI series is slated for release in Feb-26 with expanded coverage and methodological refinements. 

 


India’s CPI inflation rose further to 1.33%YoY in Dec-25 from 0.71% in Nov-25 after having touched a record low of 0.25% in Oct-25 and was marginally below the market consensus expectation of 1.5-1.6%. With this, Dec-25 marks inflation remaining below the lower threshold of 2% for the fourth consecutive month and below the 4.0% target for the eleventh consecutive month. 

 

Key highlights of Dec-25 data

  • On a sequential basis, CPI posted an increase of 0.05% MoM, in contrast to the series median contraction of -0.45% MoM usually seen in the month of December. 
  • Annualised Food & Beverages inflation continued to contract, albeit at a slower pace of -1.85% in Dec-25 from -2.78% in Nov-25. Having said, food prices remained sequentially volatile through much of FY26 without any sustained build-up in price pressures.
  • Sequentially, nearly half of the sub-categories within the food basket recorded price declines for Dec-25, led by Vegetables (-2.86% MoM) which moved back into the contractionary zone after last month’s uptick, followed by Fruits (-0.93% MoM), Pulses & Products (-0.11% MoM), Non-alcoholic Beverages (-0.11% MoM), Sugar & Confectionery (-0.07% MoM) and Cereals & Products (-0.05%).
  • In contrast, the increase within Food & Beverages was led by a sharp increase in prices of Eggs (+6.21% MoM), Meat & Fish (+1.83% MoM), Spices (+0.45% MoM) and Prepared Meals, Snacks & Sweets (+0.23% MoM).
  • Consolidated fuel inflation eased marginally to 1.6% YoY in Dec-25 from 1.8 % in Nov-25. Sequentially, fuel prices were largely firm, with Diesel excl. conveyance (-0.06% MoM) being the sole drag. A sharp sequential increase was seen in the price of PDS Kerosene (+4.04% MoM), followed by Coal (+1.31% MoM), Firewood and chips (+0.44% MoM) and Electricity (+0.37% MoM). 
  • Core CPI inflation (represented by the CPI excluding indices of Food & Beverages, Fuel & Light, and petrol and diesel items within the Miscellaneous basket) rose to a 28-month high of 4.8% YoY, compared with 4.4% in Nov-25.
    1. Core-Core CPI inflation (represented by the exclusion of gold and silver indices from Core CPI) remained flat at a series low of 2.4% YoY in Dec-25. 

Inference and Outlook

Dec-25 CPI inflation highlights the following developments –


  • Vegetable prices, inherently sensitive to weather and supply disruptions, eased modestly in Dec-25, an underwhelming outcome vis-à-vis the typical winter-season correction. Historically, December usually sees a sharp median decline of 7.3% in vegetable prices, but the current 2.8% contraction reflected a much milder adjustment. At an item-wise level within vegetables, sequential double-digit gains in lady’s finger and parwal prices, alongside firming up of tomato and onion prices, partly offset declines in potatoes and other vegetables. Having said, the near-term outlook on food prices continues to remain comforting. The above-normal monsoon outturn last year, along with comfortable reservoir levels, has enabled timely and robust progress in Rabi sowing, which should help sustain the recent comfort in food prices into early FY27 as harvests commence from Apr-26. As of 2nd Jan-26, nearly 99.4% of the normal area has been sown, led by a ~2.0% increase in wheat acreage.

 

Furthermore, inflation has continued to draw support from GST-rationalisation–led price cuts for a third consecutive month. However, the pace of downward price adjustments has tapered considerably. This likely reflects a combination of post-festive normalisation in demand and inventories, alongside emerging pass-through from rupee depreciation to imported items. Consequently, while GST changes imply an annualised disinflationary impulse of ~130 bps, we expect the realised impact on CPI to be more modest, in the range of 60–70 bps.

 

In parallel, we believe CPI inflation to have bottomed out in Oct-25 and the trajectory, as reflected so far, is likely to be upward hereon. Some of the emerging upside risks that one needs to be watchful of:   

  • The cumulative ~6% depreciation in the INR over the past 7 months poses upside risks to imported inflation, with potential spillovers into FY27 CPI. Based on standard pass-through estimates, a 5% rupee depreciation could lift headline CPI by ~15–20 bps directly, and up to ~35 bps once indirect effects are accounted for.
  • After a surge in precious metal prices in 2025, the base metal prices have started to firm up amid heightened geo-economic and geopolitical uncertainty. 
  • Recovery in domestic consumption underpinned by RBI’s monetary policy support via 125 bps of cumulative rate cuts, overall surplus monsoon, FY26 budgetary provision of income tax relief, GST rate cuts could add some upward bias to core inflation in the medium term.
  • CPI inflation is likely to edge up, especially during Q4 FY26, as favourable base effects fade away. 
  • The new CPI series, expected in Feb-26, will publish annualised inflation data for Jan-26 along with 13-months historical index. The revised series will adopt the HCES 2023–24 as its base year, featuring a refreshed item basket, expanded market coverage, and finer granularity. 
  • A possibly lower food and beverages weightage and a higher miscellaneous component may alter inflation dynamics somewhat going forward, however, limited back-series availability is likely to constrain immediate comparability with the existing CPI framework. 

 

Overall, we maintain our FY26 CPI inflation estimate at 2.1%.


Table 1: Overview of key sub-components of inflation 



Note:

1) CPI-Consolidated Fuel index includes Fuel & Light and Petrol & Diesel indices from the Miscellaneous basket.

2) CPI-Core excludes Food & Beverages and Consolidated Fuel indices from Headline CPI.

3) Readings under the memo items are derived from imputed indices. Figures have been rounded off.