Consumer inflation anticipated to remain subdued in December

December 31, 2025 (MLN): The Consumer Price Index for December 2025 is anticipated to clock in at 5.78% YoY against 6.15% recorded in the previous month and 4.1% YoY in December 2024.

This would mark a continuation of the disinflationary trend witnessed throughout the calendar year. The moderation may be primarily attributable to easing pressures in the food segment following supply normalization after earlier disruptions.

Going by the projections put forth by several brokerage houses, inflation is expected to hover in a relatively narrow band around the mid-single digit range.

On a sequential basis, the overall price index is likely to witness a decline of 0.3% MoM in the outgoing month, primarily driven by deflation in the food category as supply conditions continue to improve following the normalization of agricultural output after flood-affected crops recovered.

Taking cues from market dynamics, key perishable items including tomatoes, onions, and potatoes are likely to contribute significantly to the food segment's decline owing to improved availability and increased supply.

The vegetable price correction suggests that crop yields have stabilized as post-flood agricultural recovery gains momentum.

 Additionally, the decline in potato prices has been supported by enhanced domestic availability following supply normalization, though external demand dynamics have also played a role in easing domestic price pressures.

On the other hand, the housing and utilities segment may exert some upward pressure on the overall index due to adjustments in energy-related components.

Liquefied petroleum gas prices have witnessed an uptick following increases in international benchmark rates, while electricity tariffs have seen revisions as part of periodic adjustment mechanisms. These increases in the utilities basket partially offset the disinflationary impact from the food segment.

The transportation category is expected to provide marginal relief to consumers during the month.

Petroleum product prices have registered modest declines in line with international market movements, with diesel prices particularly showing a downward trajectory.

Ultimately, the sustained decline in food prices provides relief to households, as the food category represents a significant portion of consumer expenditure patterns, particularly for lower-income segments.

However, looking toward the upcoming months, seasonal factors are expected to influence price dynamics.

Monetary and Inflation Outlook

In its latest MPC statement, the Central Bank implemented a reduction in the policy rate, noting that headline inflation has remained within its medium-term target range over the past three months. The Committee observed that all three components food, energy, and core are converging broadly in line with expectations.

The MPC emphasized that prudent monetary policy, supported by fiscal discipline, has been instrumental in stabilizing inflation within the target range, despite recent supply-side frictions and relatively sticky core inflation. Importantly, inflation expectations remain well-anchored.

However, the Committee acknowledged that inflation may rise above the target range toward the end of FY26 due to diminishing base effects from last year's low readings, before reverting to the target range in FY27.

The inflation outlook remains subject to risks from volatile global commodity prices, the magnitude and timing of energy price adjustments, fiscal discipline, and uncertainty around wheat and perishable food item prices. 

The next monetary policy meeting is to be held on 26th January, 2026. 

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