Retail inflation inches up to 3-month high of 1.3% in December

NEW DELHI: Retail inflation inched up to a three-month high in Dec, led by narrowing deflation in some food prices and fading favourable base effect, but remained below the Reserve Bank of India’s (RBI) tolerance level for the fourth month in a row.

Data released by the National Statistics Office (NSO) on Monday showed retail inflation, as measured by the consumer price index (CPI), rose an annual 1.3%, higher than the 0.7% in Nov and below the 5.2% in Dec 2024.

Food inflation contracted 2.7% in Dec and there is an increase of 120 basis points compared to Nov. Rural inflation was at 0.8% while urban was at 2% during Dec.

Core inflation, which excludes food and fuel, soared to a 28-month high of 4.8% during the month, up from 4.4% in Nov, led by a sharp spike in gold and silver prices, which surged 69% and 97% year-onyear, respectively. Excluding these metals, core inflation moderated to 2.3% in Dec.

The increase in overall inflation and food inflation during Dec was largely attributed to increase in inflation of personal care and effects, vegetables, meat and fish, egg, spices and pulses and products. Personal care and effects, which includes gold and silver, rose 28.1% in Dec.

“Looking ahead, headline inflation is expected to edge higher but remain below the RBI’s 4% target for the rest of FY26. For FY26 and FY27, CPI inflation is projected to average around 2.1% and 4% respectively, based on the current CPI basket. The rollout of the new CPI series with a 2024 base year next month will be an important development to watch,” said Rajani Sinha, chief economist at ratings agency CareEdge.

“From a monetary policy standpoint, the recent uptick in inflation is unlikely to trouble the RBI. While inflation projections leave room for a further 25 basis points rate cut, we expect the monetary policy committee (MPC) to pause and conserve policy space, opting to ease only if growth conditions deteriorate,” said Sinha.

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