India's retail inflation, measured by the Consumer Price Index (CPI), edged up to 1.33% in December 2025, according to official data. This is a slight increase from the 0.71% recorded in November. Despite the rise, the inflation rate remains significantly below the Reserve Bank of India's (RBI) tolerance limit of 2%-6%.

A key factor influencing this low inflation is the continued decline in food prices. Food inflation remained negative at -2.71% in December, marking the seventh consecutive month of year-on-year decrease. While still negative, this is marginally higher than the -3.91% seen in November, indicating a slight increase in prices for select food items. Specifically, vegetables continued to experience steep deflation at -18.47%, and pulses remained deeply negative at -15.09%. According to an official statement, the rise in both headline and food inflation in December was driven by higher prices of personal care items, vegetables, meat and fish, eggs, spices, and pulses.

The wholesale price inflation (WPI) also rose for the second consecutive month in December 2025, reaching positive territory at 0.83%. This increase is attributed to higher prices of food items, non-food articles, and manufactured goods, which offset deflation in fuel and power. In contrast to the CPI, the WPI food index was flat compared to the previous year, following a 2.6% contraction in November 2025.

The differing trends between retail and wholesale inflation are reflected in the narrowing gap between the CPI and WPI inflation rates. Consumer Price Index (CPI)-based inflation rose to 1.3%.

Several factors contribute to the overall inflation outlook. The Reserve Bank of India's Monetary Policy Committee (MPC) has lowered its inflation forecast for 2025–26 to 2% from the earlier projection of 2.6%, citing the sharp fall in food prices and the impact of GST rate cuts. Improved food supply conditions due to higher kharif output and healthy rabi sowing are also playing a role.

However, there are emerging concerns. Urban and core inflation trends indicate a gradual firming of prices. Core inflation, excluding food and fuel, has remained largely contained. Excluding the impact of gold prices, core inflation moderated, indicating that price pressures are becoming more broad-based. Core WPI inflation, which tracks non-food manufactured items, rose to a 34-month high of 2% in December from 1.5% in November. This increase reflects hardening global commodity prices and the depreciation of the rupee in recent months, which likely pushed up the landed cost of imports.

Despite the low inflation, the cost of living in India remains high for many. The high rate of inflation globally has increased the cost of living. While food prices are decreasing, other essential needs such as housing, taxes, healthcare, and transportation contribute to the overall cost of living.