‘Old’ CPI inflation rises to 1.33% in Dec, ends 2025 outside RBI’s 2-6% range, Pg21

Key Highlights:

• CPI inflation rose to 1.33% in December 2025, up from 0.71% in November.
• Retail food prices decreased by 2.71% year-on-year in December 2025.
• The RBI had cut the repo rate by 125 bps to 5.25% in 2025.
• December 2025 marks the 11th consecutive month with CPI inflation below the RBI's target range.
• The MPC is scheduled to meet on February 4-6.
• Gold and silver inflation reached record highs of 68.66% and 97.07%, respectively, in December.

Detailed Insights:

• The rise in CPI inflation was influenced by an unfavorable base effect, despite a continued decline in food prices.
• The upcoming CPI series will have a new base year of 2024 and an updated basket of items from the 2023-24 Household Consumption Expenditure Survey.
• The RBI forecasts inflation to average around 4% in the first half of 2026-27, but this doesn't account for changes in the new CPI series.
• Vegetable inflation rose due to an unfavorable base effect, even with a month-on-month price decrease.
• Cereals inflation fell below zero in December for the first time since September 2021, potentially impacting farmers.
• Excluding gold and silver from the CPI, inflation in December 2025 would have been 0.26%.
• Core inflation, excluding food and fuel, rose to 4.6% in December, driven by gold and silver prices.

Key Concepts Involved:

• CPI (Consumer Price Index): A measure of the average change over time in the prices paid by urban consumers for a basket of consumer goods and services.
• Base Effect: The impact that the rise or fall in price levels in the previous year (the base period) has on the inflation rate in the current year.
• Repo Rate: The interest rate at which the Reserve Bank of India (RBI) lends money to commercial banks.
• Monetary Policy Committee (MPC): A committee of the RBI responsible for setting India's monetary policy, including the repo rate.