India's Retail Inflation Rises to 1.33% in December 2025
Retail inflation hits 3-month high, remains below RBI's comfort level.
Photo by Markus Winkler
Key Facts
Retail inflation: 1.33% in December 2025
RBI inflation target: 4% with 2% band
Core inflation: 4.8%, 28-month high
Food & beverages: 1.85% price contraction
UPSC Exam Angles
GS Paper 3: Indian Economy - Inflation, Monetary Policy
Connects to RBI's role, inflation targeting framework, fiscal policy
Potential question types: Statement-based, analytical questions on inflation management
Visual Insights
More Information
Background
The history of inflation targeting in India can be traced back to the recommendations of various committees, notably the Chakravarty Committee (1985) which emphasized price stability as a key objective. However, it was only in the post-liberalization era that the focus on inflation targeting gained momentum. The formal adoption of inflation targeting began with the Urjit Patel Committee report in 2014, which proposed a flexible inflation targeting framework.
This framework was subsequently adopted by the RBI, marking a significant shift in monetary policy. Prior to this, the RBI followed a multiple indicator approach, considering various factors like growth, inflation, and financial stability. The move towards inflation targeting was aimed at providing a clear nominal anchor for monetary policy and enhancing its credibility.
Latest Developments
In recent years (2020-2023), the Indian economy has faced significant inflationary pressures due to factors such as supply chain disruptions caused by the COVID-19 pandemic and rising global commodity prices, particularly crude oil. The RBI has responded by gradually tightening monetary policy, including raising the repo rate. There has been ongoing debate about the appropriate level of the inflation target, with some economists arguing for a higher target to support growth, while others advocate for maintaining the current target to ensure price stability.
The government has also implemented supply-side measures to control inflation, such as reducing import duties on certain commodities and releasing food grains from buffer stocks. Future outlook suggests a continued focus on managing inflation while supporting economic recovery.
Practice Questions (MCQs)
1. Consider the following statements regarding the Reserve Bank of India's (RBI) inflation targeting framework: 1. The current inflation target is 4% with a tolerance band of +/- 2%. 2. The Monetary Policy Committee (MPC) is responsible for setting the inflation target. 3. The RBI is mandated to publish a report every six months explaining the sources of inflation and the forecasts. Which of the statements given above is/are correct?
- A.1 and 2 only
- B.1 and 3 only
- C.2 and 3 only
- D.1, 2 and 3
Show Answer
Answer: B
Statement 2 is incorrect. The MPC is responsible for achieving the inflation target, not setting it. The target is set by the government in consultation with the RBI.
2. With reference to the recent trends in core inflation in India, consider the following statements: 1. Core inflation excludes volatile food and fuel prices. 2. A rise in core inflation indicates broad-based inflationary pressures in the economy. 3. Core inflation is always lower than headline inflation. Which of the statements given above is/are correct?
- A.1 and 2 only
- B.1 and 3 only
- C.2 and 3 only
- D.1, 2 and 3
Show Answer
Answer: A
Statement 3 is incorrect. Core inflation can be higher or lower than headline inflation depending on the relative movements of food, fuel, and other prices.
3. Which of the following factors could contribute to a decrease in retail inflation in India? 1. Increase in global crude oil prices. 2. Improved supply chain management. 3. Contraction in demand due to higher interest rates. Select the correct answer using the code given below:
- A.1 only
- B.2 and 3 only
- C.1 and 3 only
- D.1, 2 and 3
Show Answer
Answer: B
An increase in global crude oil prices would likely increase inflation. Improved supply chain management and contraction in demand would decrease inflation.
4. Assertion (A): Low retail inflation may not always be beneficial for an economy. Reason (R): Protracted periods of very low inflation can lead to deflationary pressures and discourage investment and consumption. In the context of the above, which of the following is correct?
- A.Both A and R are true and R is the correct explanation of A
- B.Both A and R are true but R is NOT the correct explanation of A
- C.A is true but R is false
- D.A is false but R is true
Show Answer
Answer: A
Low inflation can lead to deflationary expectations, which can discourage spending and investment, thus harming economic growth.
Source Articles
Retail inflation rises to 1.33% in December 2025, still lower than RBI’s lower comfort level - The Hindu
Retail inflation quickens marginally to 0.7% in Nov. 2025, still second-lowest since Jan. 2012 - The Hindu
Time to pause: On retail inflation, data takeaways - The Hindu
Evening Wrap | December 12, 2025 - The Hindu
India’s retail inflation surges to 6.2% in October - The Hindu