India's Inflation Dips to 1.33% in Dec, RBI Cuts Rates Amid "Goldilocks" Phase

Food inflation remained in the negative zone during December at (-) 2.71 per cent, as prices of food goods fell compared to the same month of the previous year. Food inflation has now stayed negative for the seventh month in a row, easing the burden on household budgets. However, the figure for December was a tad higher than the (-) 3.91 per cent recorded for November.

The increase in headline inflation and food inflation during December 2025 is mainly attributed to an increase in inflation of personal care and effects, vegetables, meat and fish, egg, spices, and pulses, according to an official statement.

However, the overall outlook for inflation remains benign. The RBI's monetary policy committee (MPC) last month slashed its forecast for India's inflation rate for the financial year 2025-26 to 2 per cent from 2.6 per cent predicted in October due to the sharp decline in food prices and the GST rate cuts playing out.

RBI Governor Sanjay Malhotra announced a reduction in the repo rate by 25 basis points to 5.25 per cent from 5.5 per cent earlier, as inflation has come down and the monetary policy could focus on boosting growth.

Malhotra said that the surge in economic growth to 8.2 per cent in the second quarter of the current financial year and the sharp decline in inflation to 1.7 per cent provided a rare "Goldilocks period" for the Indian economy.

"The MPC noted that headline inflation has eased significantly and is likely to be softer than the earlier projections, primarily on account of the exceptionally benign food prices. Reflecting these favourable conditions, the projections for average headline inflation in 2025-26 and Q1:2026-27 have been further revised downwards."

Malhotra also pointed out that core inflation (which excludes food and fuel) remained largely contained in September-October, despite continued price pressures exerted by precious metals. Excluding gold, core inflation moderated to 2.6 per cent in October. Overall, the decline in inflation has become more generalised, he added.

The RBI Governor observed that food supply prospects have improved on the back of higher kharif production, healthy rabi sowing, adequate reservoir levels and conducive soil moisture. Barring some metals, international commodity prices are likely to moderate going forward.

- IANS