December CPI Inflation Likely to Rise to 1.66% on Firm Food Prices: UBI Research
Retail inflation seen edging up from November lows as vegetables and gold push prices higher FY26 average projected near 2%
India, Dec 05 : India’s retail inflation is expected to have inched up to 1.66 per cent in December 2025, from 0.71 per cent in November, driven by an unseasonal firming in food prices and a sharp rise in gold prices, according to estimates by Union Bank of India (UBI) Research.
The increase in headline Consumer Price Index (CPI) inflation came despite a fading base effect and followed an atypical rise in food prices during the winter months, a period that usually sees seasonal softening.
Food prices firm despite remaining in deflation
Food inflation is estimated to have stayed in deflationary territory at (-)1.19 per cent in December, compared with (-)2.78 per cent in November, although sequential price increases were observed across most food categories.
Vegetables recorded the sharpest month on month gains, led by tomatoes, reflecting supply disruptions caused by October rains and higher seasonal demand.
Inflation in pulses and cereals also edged up on a sequential basis, though both segments remained negative year-on-year. Cereals inflation is projected to have turned negative for the first time since September 2021, at (-)0.28 per cent, the report said.
Gold pushes core inflation higher
Core inflation, which excludes food and fuel, is estimated to have risen to 4.68 per cent in December, up from 4.34 per cent in November, largely due to a more than 7 per cent month on month surge in gold prices.
Inflation in the personal care segment is seen touching a new series high of 28.20 per cent. However, core inflation excluding gold remained subdued at 2.56 per cent, indicating limited underlying price pressures in the broader economy.
Outlook and policy implications
UBI Research expects food inflation to remain largely negative through the third quarter of FY26, though risks persist from unseasonal rainfall and potential supply chain disruptions.
With December inflation tracking at 1.66 per cent, the bank projects average CPI inflation of around 2 per cent in FY26, broadly in line with the Reserve Bank of India’s estimates.
Given that headline inflation has consistently stayed below the 2 per cent mark, economists do not rule out the possibility of a final 25-basis point cut in the policy repo rate in February or April 2026, with the timing likely to hinge on upcoming GDP data and evolving inflation risks.
