In its latest Monetary Policy Statement, the Reserve Bank of India (RBI) has projected India’s retail inflation to settle at a low 2.1% for the 2025-26 fiscal year. While the figure indicates a period of price stability for consumers, Governor Sanjay Malhotra cautioned that a “technical” uptick is expected in the final quarter (Q4) due to statistical factors rather than a sudden jump in actual costs.
At its simplest, retail inflation (measured by the Consumer Price Index or CPI) is the rate at which the prices of daily goods—from vegetables and milk to fuel and clothing—increase over time for the average household.
When inflation is “low” (like the current 2.1% projection), it means your money maintains its purchasing power, and the cost of living isn’t rising rapidly. However, the RBI aims for a “Goldilocks” zone—keeping it around 4%—to ensure the economy grows without becoming stagnant.
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The RBI’s outlook for the year is defined by two distinct phases:
The Current Calm (FY26: 2.1%): Inflation remained exceptionally low in late 2025, recording just 0.7% in November and 1.3% in December. This was largely due to a “deflationary” trend in food—meaning prices for many staples were actually lower than they were the year before.
The Q4 Uptick (3.2%): The central bank warns that inflation will likely rise to 3.2% in the January–March 2026 quarter.
The Reasoning:
The Governor highlighted three primary reasons for the projected shift:
The “Base Effect” (The Technical Reason): This is the most significant factor. Inflation is calculated by comparing current prices to prices from exactly one year ago. In early 2025, prices were unusually low. Because we are now comparing today’s prices against those “very low” numbers, the percentage increase looks larger on paper, even if the actual month-to-month price change is small.
Volatile Components: While food and fuel remain stable, a surge in the prices of precious metals (gold and silver) has added approximately 60–70 basis points to the headline inflation figure.
Global Risks: The RBI flagged “upside risks”—external factors that could push prices higher—including geopolitical tensions that disrupt supply chains and volatility in global energy (crude oil) markets.