The statistical anomaly of 0.71 percent
Numbers lie. On paper, India is in a state of economic nirvana. The Ministry of Statistics and Programme Implementation (MOSPI) reported yesterday that Consumer Price Index (CPI) inflation for November 2025 rose to just 0.71 percent. This follows an all-time record low of 0.25 percent in October. To the uninitiated, this looks like a victory for the Reserve Bank of India (RBI). It is not. This figure is a statistical ghost, a byproduct of a massive base effect from late 2024 and the temporary deflationary impact of the GST 2.0 rate cuts implemented in September. While the headline number remains below the RBI’s lower tolerance band of 2 percent for the third consecutive month, the ground reality for the Indian consumer tells a far more aggressive story of rising costs.
The core inflation divergence
Beneath the surface, the rot is visible. Core inflation, which excludes volatile food and fuel, remains stuck at a stubborn 4.3 percent. This is the real metric of demand in the economy. Per the latest Reuters analysis, the disconnect between a 0.71 percent headline and a 4.3 percent core is the widest in a decade. Much of this stickiness is driven by precious metals. Gold prices have surged throughout 2025, adding roughly 50 basis points to the underlying inflation pressure. While vegetable prices fell 22.2 percent in November, essential services like education and healthcare are trending at 3.38 percent and 3.60 percent respectively. The “Goldilocks” period declared by RBI Governor Sanjay Malhotra on December 5 is built on the shaky foundation of falling pulse and spice prices that cannot decline indefinitely.
Breaking down the November 2025 CPI Basket
The following table illustrates the stark contrast between the deflationary food segments and the inflationary service segments that the headline number obscures.
| Category | Inflation Rate (Nov 2025) | Inflation Rate (Oct 2025) | Economic Impact |
|---|---|---|---|
| Combined CPI (Headline) | 0.71% | 0.25% | Deceptive low due to base effect |
| Food and Beverages | -3.91% | -5.02% | Major drag on headline index |
| Fuel and Light | 2.32% | 1.98% | Rising energy costs emerging |
| Housing (Urban) | 2.95% | 2.96% | Stable but elevated |
| Core Inflation (Est.) | 4.30% | 4.40% | Signifies persistent demand heat |
The RBI’s December gamble
The central bank is cornered. On December 5, 2025, the Monetary Policy Committee (MPC) unanimously cut the repo rate by 25 basis points to 5.25 percent. This was the fourth cut this year, totaling a cumulative 125 bps easing cycle. The Bloomberg consensus suggests this may be the final bullet in the RBI’s chamber. By lowering rates while core inflation is still above the 4 percent target, the RBI is betting that growth needs more support than inflation needs restraint. Real GDP growth for the second quarter of FY26 accelerated to 8.2 percent, far exceeding the initial 7.3 percent forecast. This creates a paradox: why cut rates when growth is already at a six quarter high? The answer lies in the liquidity crunch. Yesterday, on December 11, the RBI conducted a Rs 50,000 crore Open Market Operation (OMO) purchase to inject cash into a parched banking system. This suggests that while the headline inflation looks cool, the financial pipes are freezing.
Corporate winners and the liquidity trap
Market reactions are bifurcated. Tata Motors (TAMO) shares traded at ₹347.45 today, up marginally as the company benefits from the GST 2.0 tailwinds. Commercial vehicle sales jumped 25.5 percent year on year in the latest December updates, fueled by a rebound in mining and construction. However, the banking sector remains on edge. HDFC Bank, India’s largest private lender, saw its stock settle near ₹990. While deposit growth remains firm at 12.2 percent, the narrowing Net Interest Margin (NIM) is a growing concern. As the RBI cuts the repo rate, banks are forced to lower lending rates faster than they can reduce deposit costs. This “margin squeeze” is the technical mechanism that could stall the banking rally in early 2026. If the 0.71 percent inflation mirage evaporates in January as the base effect reverses, these banks will be caught holding low yield assets just as the cost of funds begins to climb again.
The coming base effect reversal
The party ends in January. The primary reason for the current sub-1 percent inflation is the high price index of late 2024. As we move into the first quarter of 2026, those high numbers drop out of the year on year calculation. Economists at HDFC Bank anticipate that inflation will average below 3 percent for the remainder of this fiscal year, but a sharp spike toward 4.5 percent is likely by April 2026. Investors must look past the current headline tranquility. The critical data point to watch is the January 12, 2026, release of the December CPI data. If that number jumps toward 1.6 percent as projected by Union Bank, the RBI’s “neutral” stance will quickly pivot back to hawkish, ending the 5.25 percent interest rate honeymoon for borrowers and home loan seekers alike.
