December CPI Rises to 1.33% as Food Deflation Narrows; Quarter Print Above RBI Forecast

India’s retail inflation edged up in December, with the Consumer Price Index rising 1.33% year-on-year, provisional data released by the National Statistics Office showed. This marks an increase of 62 basis points from November’s 0.71%, extending the gradual firming in prices seen since October. Even so, headline inflation remains well below the Reserve Bank of India’s medium-term target of 4%.

Food inflation continued to remain in deflation, though the pace of decline moderated. The Food inflation stood at -2.71% in December, compared with -3.91% in November, reflecting a 120-basis-point increase. Rural food inflation was recorded at -3.08%, while urban food inflation came in at -2.09%. The narrowing of food deflation was led by higher prices of vegetables, meat and fish, eggs, spices, pulses and products, along with personal care items.

At the aggregate level, inflation for the October–December quarter averaged 0.8%, higher than the RBI’s latest projection of 0.6% for the quarter. Looking ahead, the central bank has projected CPI inflation at 2.9% for January–March, followed by 3.9% in April–June and 4.0% in July–September, pointing to a gradual normalisation in price pressures over the next financial year.

Rural and urban inflation trends showed a similar pattern of firming. Rural headline inflation rose to 0.76% in December from 0.10% in November, while urban inflation increased to 2.03% from 1.40%. The rise in urban inflation was more pronounced, reflecting stronger pass-through from food and services. Food inflation in both segments remained negative but less so than in the previous month.

Core inflation, which excludes food and fuel, is estimated at around 4.6% in December, marking a 28-month high. This suggests that while headline inflation remains subdued due to food prices, underlying price pressures in services and non-food components are firming.

Across key components, housing inflation in the urban sector eased marginally to 2.86% from 2.95% in November. Education inflation moderated to 3.32%, while health inflation declined to 3.43%. Transport and communication inflation slipped to 0.76% from 0.88%, and fuel and light inflation eased to 1.97% from 2.32%, indicating limited pressure from energy costs.

December also marks the final CPI print under the existing series with a 2012 base year. The statistics ministry is scheduled to release a new CPI series with a 2024 base year from February 12. The shift to a new base will be closely watched for changes in weightings and inflation dynamics.

The gradual firming in inflation aligns with the RBI’s forward guidance of higher readings in the coming quarters, even as the inflation backdrop remains supportive of policy flexibility.