India inflation accelerates to 1.33% in December, driven by higher food prices

• The Reserve Bank of India revised its full-year inflation forecast down to 2% for fiscal year ending March 2026, from 2.6% projected in October
• Nominal GDP growth decelerated to 8.0% in FY2026, significantly below the 10.1% forecast in the Union Budget, with corporate earnings growth slowing to 9-10%
• Analysts expect nominal GDP growth to recover to 10-11% in fiscal year 2027 as inflation is projected to rise to 4.0% by the quarter ending September 2026

India's December Inflation Rises to 1.33% on Food Prices

Key Figures and Data

India's consumer price index (CPI) inflation accelerated to 1.33% in December 2025, up from 0.71% in November, though below the Reuters poll consensus of 1.5%. The Reserve Bank of India (RBI) projects inflation at 2% for fiscal year 2026 (ending March 2026), revised down from an October forecast of 2.6%. The central bank expects inflation to rise to 2.9% in Q4 FY2026 and 4.0% by September 2026.

Economic Concerns

Record-low inflation has contributed to a significant slowdown in nominal GDP growth, which fell to 8.0% for fiscal year 2026—substantially below the 10.1% forecast in the Union Budget. Real GDP growth is estimated at 7.4% for FY2026. This nominal GDP deceleration has raised concerns among policymakers and investors.

Market Implications

The nominal GDP slowdown has directly impacted corporate earnings, with growth decelerating to 9-10% in FY2026 from 12-13% previously, according to Manulife Investment Management. However, analysts anticipate recovery, with nominal GDP growth expected to rebound to 10-11% in fiscal year 2027 as inflation picks up.

Primary Driver

Food prices remain the key driver of the inflation uptick, though the persistently low inflation environment has created challenges for economic growth momentum. The combination of subdued inflation and slower nominal GDP growth presents a unique policy challenge for Indian authorities balancing growth stimulus with price stability objectives.

The data suggests investors should monitor inflation trends closely, as the anticipated rise in inflation rates could support improved nominal GDP growth and corporate earnings recovery in the coming fiscal year.