Time to pause, Pg6

Key Highlights:

• Retail inflation hit 0.7% in November 2025, the second-lowest recorded, following October's record low.
• Food prices contracted by 2.8% in November 2025, significantly impacting the overall CPI.
• The RBI's MPC cut interest rates by 25 basis points to 5.25% in December 2025.
• A new CPI series with base year 2024 will be released in the first quarter of 2026-27.

Detailed Insights:

• The current low inflation is partly due to a high statistical base effect from October and November 2024, when inflation was 6.2% and 5.5% respectively.
• The food and beverages category holds nearly 46% weightage in the current CPI, making it a dominant factor in determining the overall inflation rate.
• The upcoming CPI series will re-adjust weightages to better reflect current consumption patterns, reducing the overwhelming influence of food prices.
• The MPC has reduced interest rates by 125 basis points in 2025, the most significant cuts since 2019, and should now assess the impact of these cuts.
• The MPC should consider the impact of Budget 2026 and the new CPI series before making further adjustments to India's monetary policy.

Key Concepts Involved:

• CPI (Consumer Price Index): A measure that examines the weighted average of prices of a basket of consumer goods and services.
• Monetary Policy Committee (MPC): A committee of the RBI that is responsible for setting India's monetary policy.
• Base Effect: The distortion in inflation figures arising from abnormally high or low levels in the previous year.