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November CPI rose to 0.7% YoY from October’s record low (0.25%), and for the first month in many, did not miss consensus and MPC forecasts. But it remains too low. The below-seasonal May-Nov-24 food price movement is now out of the base. Markets may now focus on weather-driven supply shocks. But core inflation, flattish at 4.3%, was below 3% ex- precious metals (and has been sub-4% for 2 years now), due to GST pass-through and subdued wage growth. A new CPI series from Feb-26 will revise weights, (lower food, incorporating e-commerce and new rent). We expect the MPC to hold rates in Feb-26.
November retail inflation rebounds from Oct lows, the pickup remains muted
Nov inflation at 0.7% YoY recovered from the lowest print in this inflation data series (0.25% in Oct-25) and was in-line with consensus and MPC for the first month in many. It remains too low for comfort, though, driven by: (i) weak food inflation, concentrated in vegetables, pulses and spices; (ii) weaker core goods inflation as GST cuts are passed through; and (iii) core services inflation (excl. rent) at 3.4% YoY, likely due to weak wage growth.
Core inflation flattish at 4.3%, elevated only due to precious metals/ornaments
As we have highlighted earlier, underlying price pressures have been running below 4% for ~2 years now. Our preferred indicator suggests that demand side inflation is at 2.8%. Core inflation seems elevated at 4.3% due to the price surge in gold, silver, and ornaments. Prices of most of non-food items are growing well below 4%.
New inflation series to be released in Feb-2026
The MoSPI will release the new CPI series based on HCES 2023-24 from Feb 2026 thus revising the CPI weights in 2026 - this would mean overall lower weight of food in the overall basket. The new basket will include price data from e-commerce platforms for retail sales, and web portals for airfares and telecom services and likely capture rents better.
MPC likely to stay on hold in Feb-2026
We expect the MPC to stay on hold in Feb-26: among other factors, CPI is no longer undershooting forecasts. Rates markets too are pricing in the end of the monetary easing cycle, based on the possibility of a supply side shock to the agriculture economy (unseasonal rainfall, temperature volatility) that may potentially hit production adversely and send food prices soaring again. Other risks include recent increase in import duties on pulses, though this seems a defensive measure and can be reversed if prices rise.
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