December CPI inflation seen rising to 1.66% as food prices firm, gold lifts core inflation: UBI Research

India’s retail inflation is likely to have edged up to 1.66% in December 2025 from 0.71% in November, driven by an unseasonal rise in food prices and a sharp increase in gold prices, even as overall inflation remained well below last year’s levels, according to projections by Union Bank of India (UBI) Research.

The uptick in headline Consumer Price Index (CPI) inflation came despite a waning base effect and followed an unusual firming up of food prices during the winter months, when prices typically soften.

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Food inflation is estimated to have remained in deflationary territory at (-)1.19% in December, compared with (-)2.78% in November, although sequential price increases were recorded across most food segments.

Vegetables, particularly tomatoes, registered the sharpest month-on-month price gains, reflecting supply disruptions caused by October rains and higher seasonal demand.

Pulses and cereals inflation also edged up sequentially, though both remained negative on a year-on-year basis. Cereals inflation is projected to have turned negative for the first time since September 2021, at (-)0.28%, the report said.

Core inflation, which excludes food and fuel, is estimated to have risen to 4.68% in December from 4.34% in November, largely due to a more than 7% month-on-month increase in gold prices.

Inflation in the personal care segment is seen hitting a new series high of 28.20%. However, core inflation excluding gold remained subdued at 2.56%, indicating limited underlying price pressures in the economy.

Union Bank of India Research expects food inflation to remain largely negative through the third quarter of FY26, though risks persist from unseasonal rains and potential supply-chain disruptions.

With December inflation tracking at 1.66%, the bank projects average CPI inflation of around 2% for FY26, in line with the Reserve Bank of India’s estimates.

Given that headline inflation has remained consistently below the 2% threshold, economists do not rule out the possibility of a final 25-basis-point cut in the policy repo rate in February or April 2026, although the timing will depend on upcoming GDP data and evolving inflation risks.