New Delhi, Jan 12 (UNI) India’s inflation trajectory continued to surprise on the downside in December 2025, reinforcing expectations of sustained policy support for growth and liquidity, even as global geopolitical and financial uncertainties pose fresh risks to commodity prices and capital flows in 2026, according to SBI report released here on Monday.
Headline inflation based on the Consumer Price Index (CPI) rose to a three-month high of 1.33 per cent in December 2025, from 0.25 per cent in October, driven primarily by a rise in food and beverage prices.
Despite the uptick, inflation remained well below long-term averages, with calendar year 2025 recording the lowest average CPI inflation of 2.2 per cent under the current base year.
Food inflation remained the dominant disinflationary force in the economy. For the first time in the history of the current CPI series, food inflation stayed in negative territory for seven consecutive months, while annual food inflation averaged just 0.4 per cent in 2025, far below the 14-year average of 5.8 per cent. SBI Research attributed this trend largely to supply-side factors, particularly in food commodities.
An item-wise decomposition of CPI showed that 171 of the 299 CPI items were driven by supply-side factors, including 123 food items, while 99 items were demand-driven and 29 neutral.
This confirms that food-related supply dynamics played a decisive role in keeping inflation range-bound through most of 2025 and are likely to continue influencing prices into 2026.
Fuel and light inflation moderated to 1.97 per cent in December, while inflation in miscellaneous items rose, led by personal care and effects due to surging precious metal prices.
Gold inflation stood at 68.6 per cent in December, up from 58.6 per cent in November, while silver inflation rose sharply to 97.1 per cent from 65.6 per cent.
SBI Research noted that the surge in precious metals reflects strong demand from jewellery, industrial use and portfolio diversification amid rising global uncertainty and scepticism over dollar dominance.
The report highlighted that the December CPI data marked the final release under the 2012 base year, with a new base year of 2024 and an updated consumption basket set to be introduced with the January 2026 data.
Under the revised base, inflation is expected to rise modestly to around 2.4–2.5 per cent by March 2026, reflecting statistical changes rather than a sharp shift in underlying price pressures.
On the global front, SBI Research cautioned that geopolitics has decisively shifted toward geoeconomics, with conflicts and policy uncertainty across multiple regions likely to introduce volatility in energy and commodity prices.
Rising US Treasury yields, uncertainty surrounding the US Federal Reserve’s leadership, and increasing fragmentation in global capital flows could create disorderly price movements, particularly for key imports.
Looking ahead, SBI Research said global developments will be a key determinant of inflation trends in 2026.
While weak crude prices are expected to keep fuel inflation contained in the near term, volatility in commodities, capital flows and exchange rates could test price stability.
In this environment, sustained liquidity support and careful policy calibration are likely to remain central to maintaining financial stability and keeping bond yields in check.
