Inflation Below RBI Band Ahead of Budget 2026

Price Pressures Stay Contained as Policy Headroom Improves​

As preparations intensify for Budget 2026, the latest inflation data points to a period of relative price stability, offering policymakers additional flexibility. Inflation remained below the lower tolerance limit set by the Reserve Bank of India for the fourth consecutive month in December 2025, even as headline and food inflation edged up marginally from November due to selective price pressures.

Headline Inflation Remains Subdued​

Headline consumer price index inflation stood at 1.33 percent year on year in December 2025. This marked an increase of 62 basis points over November, but still kept inflation comfortably below the lower threshold of the central bank’s tolerance band for the fourth straight month.

Food Inflation Continues in Deflation​

Food inflation stayed in deflationary territory for the seventh consecutive month at minus 2.71 percent. Rural food inflation was recorded at minus 3.08 percent, while urban food inflation stood at minus 2.09 percent. This was despite a month on month rise in food prices, indicating that annual price levels remained weak across both rural and urban markets.

Rural and Urban Inflation Trends​

Rural headline inflation rose to 0.76 percent in December from 0.10 percent in November. Urban headline inflation also moved higher, increasing to 2.03 percent from 1.40 percent over the same period. The rise was driven by higher prices in personal care and effects, vegetables, meat and fish, eggs, spices, pulses, and related items.

Key Segments Show Easing Trends​

Several major components of inflation showed moderation during the month. Housing inflation eased to 2.86 percent, education inflation moderated to 3.32 percent, and health inflation declined to 3.43 percent. Fuel and light inflation fell to 1.97 percent, while transport and communication inflation eased to 0.76 percent, reflecting softer cost pressures in these segments.

Policy Implications Ahead of Budget 2026​

With inflation remaining well below the tolerance band, the data provides greater policy headroom for both the government and the central bank ahead of Budget 2026. Focus is now expected to shift towards targeted fiscal measures aimed at sustaining economic growth while maintaining price stability. This includes initiatives to improve women’s access to finance and expand the role of cooperatives in the economy in line with the National Cooperative Policy, 2025.