Honestly, if you told a Delhi street vendor or a Mumbai office worker a few years ago that the inflation rate of India would drop below 1%, they’d probably laugh in your face. We’ve spent years dreading the price of tomatoes hitting 100 rupees. But here we are in early 2026, and the economic landscape looks wildly different from the double-digit nightmares of the past.
The latest numbers are out. As of the January 2026 data release (covering December 2025), India's retail inflation stood at 1.33%.
Wait. Read that again. 1.33%.
It’s a slight bump from the record low of 0.25% we saw in October 2025, but it’s still well below the Reserve Bank of India’s (RBI) comfort zone of 2% to 6%. For the first time in a generation, the conversation isn’t about how high prices are going, but rather if they’re staying too low for too long.
The "Goldilocks" phase of the inflation rate of India
Governor Sanjay Malhotra of the RBI recently called this a "Goldilocks moment." Basically, it’s not too hot and not too cold. The economy is growing at a staggering 8.2% GDP clip, yet the inflation rate of India is acting like it's on a long vacation.
How did we get here? It wasn't just luck. A few massive things happened at once.
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First, food prices—which make up nearly half of the Consumer Price Index (CPI) basket—went into a tailspin. We actually saw food deflation. In November 2025, food inflation was at -3.91%. That’s right, negative. Vegetables, pulses, and spices that used to drive us crazy with price hikes suddenly became much cheaper.
Second, the government got aggressive with GST rate rationalization in late 2025. By simplifying taxes on hundreds of items, they essentially baked a price cut directly into the economy.
Breaking down the 1.33% December print
The December figure of 1.33% was a bit of a "normalization." It was lower than what most market analysts expected (they were guessing around 1.5%), but it showed that the extreme lows of October are behind us.
Here is what the actual "basket" looked like in the year-end data:
- Food and Beverages: Still in a cooling phase, though less so than November.
- Housing: Eased slightly to 2.86%.
- Fuel and Light: Stayed low at 1.97% because global crude prices didn't explode.
- Core Inflation: (The stuff excluding food and fuel) sits around 2.3%.
This core number is what economists like Suvodeep Rakshif from Kotak Institutional Equities watch closely. If core inflation is low, it means there isn't a massive "demand pull" making everything expensive. It sort of suggests there's still room for the economy to grow even faster without overheating.
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Why this matters for your wallet in 2026
When the inflation rate of India stays this low, the RBI has more room to be the "good guy." On December 5, 2025, they cut the repo rate by 25 basis points to 5.25%.
If you’re looking at a home loan or a car loan, this is the best news you've had in years. Lower repo rates eventually mean lower EMIs. The central bank has shifted to a "neutral" stance, which is fancy talk for "we might cut rates again if inflation stays this chill."
However, there is a flip side. Experts like Madan Sabnavis from Bank of Baroda are pointing out that we are entering a "base effect" period. Because 2025 had such incredibly low prices, when we compare 2026 prices to them, the percentage growth might look scary even if actual prices aren't that high. He’s forecasting that we might see the inflation rate of India climb back toward 4% or 4.5% later in 2026 just because of the way the math works.
The coming "Re-jig" of the CPI
One thing most people aren't talking about is that the government is planning to change how they calculate the inflation rate of India starting in February 2026.
The current basket is old. It's based on 2011-12 consumption patterns. Back then, we weren't spending nearly as much on data plans, streaming services, or processed foods as we do now. By updating the weights in the CPI, the "official" inflation number might suddenly jump or drop simply because the formula changed.
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Is the "Low Inflation" party over?
Not necessarily. But it's changing.
While the 1.33% print feels like a win, the global scene is getting messy. We’re seeing trade tensions and new tariffs from the U.S. that could make imports more expensive. If the Rupee weakens significantly against the Dollar, we "import" inflation.
Also, look at "Super Core" services. This is stuff like healthcare and education. Those aren't dropping. In fact, health inflation was around 3.6% in late 2025. So, while your potatoes are cheaper, your doctor’s visit probably isn't.
Real-world insights for the rest of 2026
If you're trying to plan your finances around the inflation rate of India, here’s the smart way to look at it:
- Don't wait forever for rate cuts: We’ve already seen a big cycle of cuts. While one more 25-bps cut is possible in February, we are likely near the bottom. If you're looking to lock in a fixed-rate loan, now is probably the window.
- Watch the new CPI series: When the government releases the new calculation methodology in February/March, ignore the headline shock. Look at the "month-on-month" change to see if prices are actually rising or if it's just the new math.
- Commodities are the wild card: Watch the price of gold and oil. Gold has been firming up, which actually added about 50 basis points to recent inflation readings.
The inflation rate of India in 2026 is a story of a "Goldilocks" economy trying to stay balanced. We’ve moved from a period of "crisis management" to "stability management." It’s a boring kind of good news—and honestly, after the last few years, boring is exactly what our bank accounts need.
To stay ahead of these trends, monitor the RBI's MPC (Monetary Policy Committee) minutes which usually drop two weeks after their meetings. They provide the most honest look at whether the experts are actually worried about a price rebound or if they're still confident in this low-inflation streak.