India inflation accelerates to 1.33% in December

Source Credit : CNBC

India’s consumer inflation rose to 1.33% in December accelerating from 0.71% in the prior month.

The headline inflation number was below economists’ expectations of a 1.5% increase in the consumer price index, according to a Reuters poll.

The increase in headline inflation and rising food prices was mainly due to “increase in inflation of personal care and effects, vegetables, meat and fish, egg, spices and pulses and products,” India’s Ministry Of Statistics and Programme Implementation said in a release on Monday.

Headline inflation increased 0.76% in the rural sector and 2.03% in urban areas in December. However, fuel and light inflation rate eased at 1.97%, lower than the 2.32% print in November.



The “lower inflation print is likely to keep the hopes of one last rate cut alive” but given the start of a new CPI series from next month, the central bank can do a “better assessment of inflation and rates trajectory” from April policy, said Anubhuti Sahay, head of India Economics Research at Standard Chartered Bank.

The Reserve Bank of India expects consumer inflation to be 2% for the fiscal year ending March 2026, down from a 2.6% forecast made in October. The central bank estimated inflation at 2.9% for the three months to March, rising to 4.0% for the quarter ending September 2026.

Record-low inflation in 2025 slowed nominal GDP growth, raising concerns among policymakers and investors.

India released an early estimate last week projecting real GDP growth of 7.4% for fiscal year 2026 and nominal GDP growth of 8.0%. This was sharply lower than the 10.1% nominal GDP growth forecast in the Union Budget for the same year.

“Nominal GDP growth rate slowdown is a cause of concern,” said Rana Gupta, managing director of Indian Equities at Manulife Investment Management. He added that earnings growth has decelerated to 9-10% in fiscal year 2026 from 12-13% earlier.

Food prices fell 2.71% year-on-year in December against a decline of 3.91% in November. Vegetable prices fell 18.47% after a 22.20% decline a month ago.



While Prime Minister Narendra Modi's consumer tax cuts are seen keeping inflation in check going ahead, uncertainty over a trade deal with the U.S. that led to the rupee depreciating 4.7% in 2025, its largest annual fall in three years, could keep up the pressure.

"We believe the bottom for inflation is now behind us and inflation could continue to edge up over the coming months, although still expected to remain well below 4% till mid-2026," said Sakshi Gupta, an economist at HDFC Bank.

Benign inflation and high economic growth prompted the RBI to cut interest rates by 25 basis points last month, and some economists expect another rate cut. The RBI's next policy decision is on February 6.

India's economy is estimated to grow at 7.4% in the fiscal year ending in March, helping New Delhi cope with the impact of punitive U.S. tariffs.

Core inflation, which excludes volatile items such as food and energy and is an indicator of demand in the economy, was between 4.6% and 4.63% in December, compared with 4.2% to 4.3% in November, according to two economists.

Core inflation has been elevated partly because of firm gold prices.

The December inflation print was the last before India launches a new consumer price index series next month with 2024 as the base year, incorporating new data and updated consumption baskets.

Inflation estimates could be influenced by the new series, HDFC Bank's Gupta said.