India's retail inflation has reached a 12-year low, but the benefits are not being felt equally across the country. While the national average shows a significant cooling of prices, a deeper look reveals disparities between states and between rural and urban areas.
The overall retail inflation rate in India fell to 2.2% in 2025, the lowest in 12 years, with food prices experiencing deflation for the first time since 2014. This marks a significant achievement in managing price levels, especially considering the global economic volatility of recent years. The Consumer Price Index (CPI) rose by 1.33% in December 2025, according to the Ministry of Statistics and Programme Implementation (MoSPI). This is a slight increase from 0.71% in November, but still well below the Reserve Bank of India's (RBI) target range of 2% to 6%. The Consumer Food Price Index (CFPI) showed a year-on-year decline of 2.71% in December, although this was a moderation from the 3.91% decline in November.
However, the story is not the same across the board. Seventeen states and union territories are experiencing inflation rates higher than the national average. This suggests that local economic factors, supply chain issues, or specific policy implementations in these regions might be contributing to sustained higher prices. Kerala registered the highest inflation in 2025, while Telangana and Bihar recorded the lowest.
Furthermore, rural areas are facing greater inflationary pressures compared to urban centers. In December 2025, rural headline inflation increased to 0.76% from 0.10% in November, while urban inflation climbed more sharply to 2.03% from 1.40%. Goa recorded the most significant rural-urban inflation disparity. This divergence could be attributed to various factors, including differences in access to markets, the impact of agricultural prices, and the effectiveness of the public distribution system. Food inflation remained negative in both segments, at -3.08% in rural areas and -2.09% in urban centers.
Several factors contributed to the slight uptick in headline inflation during December. According to MoSPI, these include higher prices for personal care items, vegetables, meat and fish, eggs, spices, and pulses. Housing inflation eased marginally to 2.86%, while education and health inflation stood at 3.32% and 3.43%, respectively. Fuel and light inflation declined to 1.97%, and transport and communication inflation softened to 0.76%.
The RBI is expected to maintain its accommodative stance on monetary policy, given the benign inflation levels. The central bank had previously lowered its inflation forecast for the fiscal year ending March 2026 to 2%, down from 2.6%. The central bank expects CPI to pick up from January, averaging 2.9 per cent in the remaining part of the financial year ending in March. Some economists anticipate further rate cuts, while others suggest the RBI might focus on managing liquidity. The central bank has cautioned that inflation could pick up from January due to base effects.
Going forward, it will be crucial to monitor the inflation trends at the state and regional levels to identify and address the underlying causes of the disparities. Effective policy interventions, targeted at specific regions and sectors, will be necessary to ensure that the benefits of cooling prices are distributed more equitably across the country.
