India's consumer price inflation accelerated in December, though the increase was milder than anticipated, maintaining the possibility of further monetary easing by the central bank.

The headline Consumer Price Index (CPI) rose to 1.33% year-on-year in December, up from 0.71% in November, according to data released Monday by the Ministry of Statistics and Programme Implementation. The print came in below the 1.5% increase forecast in a Reuters poll of economists.

The ministry attributed the uptick primarily to rising prices in specific food categories and personal care items. "Increase in inflation of personal care and effects, vegetables, meat and fish, egg, spices and pulses and products," drove the overall number higher. The inflation increase was more pronounced in urban areas (2.03%) compared to rural sectors (0.76%). Notably, fuel and light inflation eased to 1.97% from 2.32% in November.

The subdued inflation figure reinforces market expectations for additional policy support. "The lower inflation print is likely to keep the hopes of one last rate cut alive," said Anubhuti Sahay, Head of India Economics Research at Standard Chartered Bank. She added that the central bank would gain greater clarity for its policy trajectory from April onward, following the launch of a new CPI series next month.

The Reserve Bank of India (RBI) has recently revised its inflation outlook downward, now projecting an average of 2% for the fiscal year ending March 2026. However, it anticipates a gradual rise to 4% by the quarter ending September 2026.

The persistently low inflation environment in 2025 has contributed to a slowdown in nominal GDP growth, a development causing concern among policymakers and investors. Recent government estimates project real GDP growth of 7.4% for FY2026, but nominal GDP growth is forecast at just 8.0%—sharply lower than the 10.1% budgeted earlier.

"Nominal GDP growth rate slowdown is a cause of concern," said Rana Gupta, Managing Director of Indian Equities at Manulife Investment Management, linking it to a deceleration in corporate earnings growth. Gupta expects a recovery in nominal GDP to 10-11% in the following fiscal year as inflation picks up.

The statistical backdrop for measuring inflation is set to change, with India transitioning to a new CPI series with a base year of 2024 starting February 12. This revision will provide policymakers with updated tools to assess price trends and calibrate future economic strategy.