Inflation Bottoms Out as CPI Rises to 1.33%; Food Inflation Shows Signs of Recovery

India Inflation Update: December 2025 Signals a Turning Point

India’s inflation trajectory appears to be turning a corner, with the latest data indicating a move away from abnormally low levels toward a more stable and sustainable range. According to the Ministry of Statistics and Programme Implementation (MoSPI), headline Consumer Price Index (CPI) inflation rose to 1.33% year-on-year in December 2025, marking a clear recovery from recent lows.

Although CPI inflation remains below the Reserve Bank of India’s (RBI) lower tolerance band, this marks the fourth consecutive month of sub-2% inflation, signalling continued price stability rather than demand stress. Importantly, the data suggests that inflation has likely bottomed out, with early signs of gradual normalisation now emerging.

Food Inflation (CFPI) Still in Deflation, but Bottoming Out

Food inflation, measured by the Consumer Food Price Index (CFPI), remained in deflationary territory at -2.71% YoY in December 2025. This marks the seventh straight month of negative food inflation, reflecting the prolonged softness in key food categories.

However, the trend now points toward stabilisation rather than further decline. The pace of deflation has moderated meaningfully, indicating that food prices are beginning to find a base.

Key Contributors to December’s Uptick

The improvement in food inflation was primarily driven by:

• Vegetables
  
  
• Meat and fish
  
  
• Eggs
  
  
• Pulses
  
  
• Spices
  
  

These categories saw either a moderation in price declines or a return to positive inflation, helping arrest the downward trend in food prices.

Rural and Urban Inflation Show Similar Stabilisation

A notable aspect of the December inflation print is the parallel stabilisation across rural and urban inflation baskets. Both segments exhibit similar bottoming patterns, reinforcing the view that the recent disinflation phase was broad-based rather than a result of weak consumer demand.

This alignment suggests that:

• Disinflation has been supply-led
  
  
• Demand conditions remain intact
  
  
• Price stability is improving organically
  
  

Such a trend is constructive for overall macroeconomic health.

What This Means for RBI Policy and Growth Outlook

The inflation data strengthens the narrative that India is transitioning from an ultra-low inflation environment toward a policy-friendly zone. While inflation remains below the RBI’s comfort band, the visible bottoming reduces concerns around deflationary risks.

Key Policy Implications

• Provides room for accommodative monetary policy
  
  
• Supports growth without risking price instability
  
  
• Reduces urgency for aggressive policy intervention
  
  

For markets, this environment is supportive of:

• Stable interest rates
  
  
• Improved visibility on growth
  
  
• Better risk appetite across equities and credit
  

Bigger Picture: A Healthier Inflation Normalisation

Rather than signalling weakness, the current inflation trajectory reflects a healthy recalibration following a period of sharp disinflation. The gradual rise in CPI and the stabilisation in food prices indicate that inflation dynamics are becoming more balanced.

Key Takeaways

• CPI inflation has likely bottomed out
  
  
• Food inflation is recovering from deep deflation
  
  
• Rural and urban trends show broad-based stability
  
  
• Macro conditions support growth with price discipline
  

Conclusion

India’s December 2025 inflation data marks a critical inflection point. With CPI rising to 1.33% and food inflation showing early signs of recovery, the economy appears to be moving toward a more sustainable inflation path. This transition strengthens the macro foundation for growth while preserving price stability—an ideal backdrop for both policymakers and financial markets.