December CPI Inflation Rises to 1.33%, Exceeding RBI's Target
December CPI inflation increases to 1.33%, falling outside RBI's 2-6% target range.
Key Facts
December 2025 CPI inflation: 1.33%
RBI's inflation target range: 2-6%
UPSC Exam Angles
GS Paper 3: Economy - Inflation, Monetary Policy
Connects to understanding of macroeconomic indicators and RBI's role
Potential for statement-based questions on inflation targeting framework
Visual Insights
More Information
Background
The concept of inflation targeting in India has evolved significantly over time. Prior to the formal adoption of inflation targeting in 2016, the RBI followed a multiple indicator approach, considering factors like output growth, credit growth, and global economic conditions alongside inflation. The shift towards explicit inflation targeting was recommended by several committees, including the Urjit Patel Committee in 2014, which advocated for a flexible inflation targeting framework.
This framework aimed to provide a nominal anchor for monetary policy, enhancing transparency and accountability. Historically, India has experienced periods of high inflation, particularly in the 1970s and 1990s, prompting various policy responses and reforms in monetary policy management.
Latest Developments
In recent years, the RBI has faced challenges in maintaining inflation within its target range due to factors such as supply chain disruptions, geopolitical tensions, and fluctuations in global commodity prices. The COVID-19 pandemic further complicated the situation, leading to both demand-side and supply-side pressures on inflation. Looking ahead, the RBI is expected to continue to prioritize price stability while also supporting economic growth.
The effectiveness of monetary policy in achieving these dual objectives will depend on various factors, including the government's fiscal policy stance, global economic conditions, and the evolution of inflation expectations. There's ongoing debate on whether the current inflation targeting framework needs adjustments to better address supply-side shocks and structural issues in the Indian economy.
Practice Questions (MCQs)
1. Which of the following statements regarding the Reserve Bank of India's (RBI) inflation targeting framework is/are correct? 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 inflation target is set in consultation with the Ministry of Finance.
- 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 of India, in consultation with the RBI.
2. Consider the following statements: 1. Consumer Price Index (CPI) measures the change in prices of a basket of goods and services consumed by households. 2. CPI is released by the National Statistical Office (NSO), Ministry of Statistics and Programme Implementation. 3. CPI is used by the RBI as a key indicator for monetary policy formulation. 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: D
All three statements are correct. CPI measures price changes, is released by NSO, and is a key input for RBI's monetary policy.
3. Which of the following factors can contribute to a situation where CPI inflation exceeds the RBI's target range? 1. Supply chain disruptions 2. Increased government spending 3. Global commodity price increases
- A.1 and 2 only
- B.1 and 3 only
- C.2 and 3 only
- D.1, 2 and 3
Show Answer
Answer: D
All three factors can contribute to higher inflation. Supply chain issues reduce supply, increased government spending boosts demand, and higher commodity prices increase input costs.
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