RBI Annual Report FY 2025-26: Inflation Trends, CPI, Food, Fuel, Core Inflation, WPI and MSPs

The RBI Annual Report FY 2025-26 records an unusually sharp moderation in India’s inflation during 2025-26, with headline CPI inflation averaging just 2.1 per cent, supported mainly by food deflation and favourable base effects. However, the inflation story was not uniformly benign: precious metals pushed up core inflation, LPG price increases lifted fuel inflation, and certain food categories such as fruits and oils and fats continued to face price pressures.

For RBI Grade B, RBI promotion exams, UPSC, IBPS, banking examinations and interviews, this chapter is extremely important because it combines headline numbers with the drivers behind inflation. Merely remembering “CPI = 2.1%” is not enough. You should know why inflation fell, which components drove the fall, how the CPI basket changed, and why core inflation remained elevated.

1. The Big Inflation Picture in 2025-26

The central message of the RBI Annual Report FY 2025-26 is straightforward:

Headline inflation fell sharply, but underlying price pressures were uneven.

Headline CPI inflation moderated to:

2.1% in 2025-26

This was substantially lower than:

4.6% in 2024-25
5.4% in 2023-24

The report attributes the sharp moderation primarily to:

Food deflation
Strong favourable base effects
Better food availability
Comfortable foodgrain stocks
Higher wholesale market arrivals
Supportive trade policies
Government supply-management measures
Largely favourable weather conditions
GST rate rationalisation and simplification in September 2025

At the same time, core inflation faced upward pressure from precious metals, while LPG price increases pushed up fuel inflation towards the end of the year.

Exam takeaway

Headline inflation ↓ sharply, mainly because food inflation ↓.
Core inflation remained comparatively sticky because of gold and silver.
Fuel inflation ↑ because of LPG price hikes.

That three-line framework is worth memorising.

2. Why Did Inflation Fall So Sharply?

The fall in inflation was not caused by one factor.

The report identifies a combination of supply-side improvement + base effects + government measures + favourable weather.

The most important factor was food.

During April-December 2025, food and beverages prices contracted by 0.8% year-on-year, compared with an increase of 7.6% during the corresponding period of the previous year.

This represents a major change in the inflation environment.

The transmission mechanism

The broad chain was:

Better production and arrivals → higher food availability → lower food prices → food deflation → lower headline CPI inflation

This was reinforced by:

Favourable base effects → lower measured year-on-year inflation

and:

Government supply-management measures → reduced price pressures

3. Base Effect: A Critical Concept for the Exam

One of the most important phrases in the report is “strong favourable base effect.”

Year-on-year inflation compares the current price level with the corresponding period one year earlier.

Therefore, even if prices do not fall dramatically in absolute terms, inflation can decline sharply when the previous year’s comparison base was unusually high.

The RBI specifically notes that the moderation in food inflation was driven by both:

muted price pressures in important food categories; and
a strong favourable base effect.

Simple example

Suppose:

Food price in Year 1 = ₹100
Food price in Year 2 = ₹120
Food price in Year 3 = ₹121

Then:

Year 2 inflation = 20%
Year 3 inflation = 0.8%

The price is still higher in Year 3, but the inflation rate has collapsed because the comparison is now against the high Year-2 base.

Exam Point

Inflation is a rate of change, not the price level itself.

A fall in inflation does not automatically mean that prices have fallen.

4. India’s New CPI Series: Base Year 2024=100

This is one of the highest-priority factual areas from the report.

On February 12, 2026, the Ministry of Statistics and Programme Implementation (MoSPI), Government of India, released a new CPI series with:

Base year: 2024 = 100

The revised structure follows the United Nations Classification of Individual Consumption According to Purpose (COICOP) 2018.

The weights are derived from the:

Household Consumption Expenditure Survey (HCES) 2023-24

The old CPI series had six groups.

The new CPI structure has:

12 divisions

5. The Most Important Change: Food Weight Fell

Under the revised CPI series:

Component	CPI 2012=100	CPI 2024=100
Food & beverages	45.9%	36.8%
Fuel & light	6.8%	10.2%
Excluding food & fuel	47.3%	53.0%

This is an extremely important structural change.

Why did food’s weight fall?

The report explains that it reflects:

evolving consumption patterns; and
a shift towards greater consumption of non-food items.

Prepared meals were also reclassified into the new:

“Restaurants and accommodation services”

division.

6. CPI 2024=100: The 12 Divisions

The revised CPI structure contains the following divisions:

No.	Division	Weight (%)
1	Food and beverages	36.8
2	Pan, tobacco and intoxicants	3.0
3	Clothing and footwear	6.4
4	Housing, water, electricity, gas and other fuels	17.7
5	Furnishings, household equipment and routine household maintenance	4.5
6	Education services	3.3
7	Health	6.1
8	Information and communication	3.6
9	Transport	8.8
10	Recreation, sport and culture	1.5
11	Personal care, social protection and miscellaneous goods and services	5.0
12	Restaurants and accommodation services	3.3
Total		100

What changed structurally?

Three changes deserve special attention:

1. Six groups → 12 divisions

2. Housing + fuel and light → one broader division

3. Transport and communication → separately classified as transport and information & communication

These changes are designed to better reflect contemporary consumption patterns.

7. Important Caution: Old and New CPI Series Are Not Strictly Comparable

This is a trap area for objective examinations.

The report explicitly warns that the CPI 2024=100 series is not strictly comparable with the earlier CPI 2012=100 series because of changes in:

methodology,
sample size, and
collection techniques.

Therefore, the RBI uses:

CPI 2012=100 until December 2025
CPI 2024=100 from subsequent months

when discussing inflation during this transition period.

Exam trap

Do not casually construct a continuous monthly comparison across the series break without considering the methodological change.

8. Food Inflation: The Main Reason Inflation Fell

Food was the biggest story of the year.

Food and beverages inflation averaged -0.8% during April-December 2025, compared with 7.6% during the same period a year earlier.

The decline was driven particularly by:

vegetables,
pulses,
cereals.

The RBI notes that food and beverages inflation had reached a peak of 9.7% in October 2024 before undergoing a sustained decline.

9. Vegetables: A Major Source of Disinflation

Vegetable prices behaved unusually during 2025-26.

During April-December 2025, vegetable prices declined by:

19.4% year-on-year

They subsequently increased by only 0.8% in Q4:2025-26.

The report highlights an unusually low and delayed summer price build-up following an extended period of winter price easing.

This was contrary to normal seasonal patterns.

Why does vegetable inflation matter?

Vegetables are:

highly perishable;
sensitive to weather;
subject to seasonal production cycles;
affected by transport and market arrivals.

Consequently, vegetable prices can create significant short-term volatility in food inflation.

10. TOP Inflation: Tomato, Onion and Potato

The famous TOP basket — Tomato, Onion and Potato — remained relatively benign.

During the first three quarters of 2025-26:

TOP prices recorded 31.3% deflation

In Q4:

TOP deflation was 12%

Onion was a particularly important contributor.

The RBI attributes the benign prices to:

higher production;
steady arrivals;
lower exports; and
supply-side measures, including targeted retail sales from government buffer stocks.

Exam Point

Remember the policy mechanism:

Higher production + higher arrivals + lower exports + government buffer-stock intervention → lower TOP prices → lower food inflation.

11. Pulses Inflation: Another Major Disinflation Driver

Pulses recorded:

13% deflation during April-December 2025

This followed an 11.4% price increase during the corresponding period of the previous year.

In Q4:2025-26, pulses recorded:

7.9% deflation

The RBI identifies several reasons:

higher domestic production;
large imports;
stock disclosure requirements; and
government retail sales of Bharat Dal.

Production of pulses in 2024-25 was 5.9% higher than in 2023-24.

Policy lesson

Pulses demonstrate how food inflation can respond to a combination of:

domestic production + imports + stock monitoring + government intervention.

12. Cereals: Rice and Wheat Helped Contain Inflation

Cereals recorded only:

2.4% inflation during April-December 2025

compared with 7.6% in the corresponding period of the previous year.

In Q4:2025-26, cereals moved into:

0.2% deflation

Wheat recorded deflation in December 2025, after 50 months.

The RBI attributes this to:

record production;
comfortable buffer stocks; and
continued export restrictions until February 2026.

Rice inflation also remained subdued because of record production and high buffer stocks.

13. Food Inflation Was Not Universally Benign

This is where many superficial summaries go wrong.

The RBI Annual Report FY 2025-26 does not say that every food category experienced falling prices.

Two important exceptions were:

Fruits

Average fruit inflation during April-December 2025:

10.6%

Q4:2025-26:

7.9%

Higher fruit prices were associated with, among other factors, a 5% decline in coconut production in 2024-25 due to higher temperatures and unseasonal rainfall.

Oils and fats

Prices increased by:

15% during April-December 2025

compared with just 1.9% during the corresponding period a year earlier.

Oils and fats inflation remained in double digits for 12 consecutive months until October 2025.

14. Why Did Oils and Fats Become Expensive?

The report identifies both global and domestic factors.

International factor

International palm oil prices increased due to higher biodiesel mandates in key producer countries.

Domestic factor

A domestic production shortfall in 2024-25 created pressure on mustard oil prices.

Mustard oil inflation reached a:

41-month high of 24.2% in August 2025

The report also notes that soybean production weakness during the 2025-26 kharif season could create some upside risk, although higher rabi output of mustard and rapeseed provided some support.

15. GST Rationalisation and Inflation

The September 2025 rationalisation and simplification of GST rates also contributed to limiting price pressures.

The effect was particularly visible in some categories during the latter part of the year.

The report notes that GST rationalisation helped:

limit price pressures across goods and services;
support price corrections in some core categories;
contribute to lower inflation in areas such as motor vehicles and related components.

Exam logic

GST rationalisation → lower effective tax incidence in selected items → price corrections → moderation in inflationary pressure

The exact effect differs across categories, so avoid saying GST rationalisation automatically reduces all inflation.

16. Fuel Inflation: LPG Became the Key Driver

The food story was disinflationary.

Fuel was different.

Fuel inflation increased to:

2.4% during April-December 2025

from a deflation of 3.2% in the corresponding period a year earlier.

The major reason was a:

₹50 increase in LPG cylinder prices in April 2025

As a result, the contribution of the fuel group to headline inflation increased to:

8.8%

during April-December 2025, compared with:

-4.3%

a year earlier.

17. March 2026: Another LPG Price Increase

The fuel story intensified towards the end of the financial year.

In March 2026:

Fuel inflation = 0.9%

compared with:

January 2026: 0.1%
February 2026: 0.1%

The increase was attributed to a:

₹60 increase in LPG cylinder prices in March 2026

Exam Point

April 2025: LPG +₹50
March 2026: LPG +₹60

These are highly specific factual numbers and therefore worth retaining for RBI-oriented examinations.

18. Core Inflation: Why Did It Remain Elevated?

Core inflation generally refers to CPI inflation excluding food and fuel.

According to the report, core inflation:

Averaged 4.3% during April-December 2025

compared with:

3.4% in the corresponding period of the previous year.

Under the revised CPI 2024=100 series, core inflation was broadly stable at:

3.7% during January-March 2026

So the inflation picture was:

Inflation component	2025-26 trend
Headline CPI	Sharp moderation
Food	Deflationary
Fuel	Moved upward
Core	Higher than previous year / relatively sticky

This distinction is crucial.

19. Gold and Silver: The Biggest Core Inflation Story

Why did core inflation remain elevated?

The answer was primarily:

Precious metals — gold and silver

The report states that elevated inflation in the personal care and effects category, particularly gold and silver, accounted for nearly half of core inflation in the second half of 2025-26.

The surge in precious-metal prices reflected:

heightened global safe-haven demand;
geopolitical uncertainty;
the evolving global monetary-policy trajectory; and
changing monetary-policy expectations.

20. Core Inflation Excluding Gold and Silver Was Benign

This is one of the most important analytical points in the entire inflation section.

If gold and silver are excluded:

Core inflation moderated in the second half of 2025-26.

The report attributes this partly to GST-rationalisation-led price corrections, particularly in:

motor vehicles; and
related components.

Therefore:

Headline core inflation looked relatively sticky → precious metals were a major reason.

But:

Core inflation excluding gold and silver → more benign underlying trend.

This distinction can easily become a Grade B descriptive question.

21. Clothing, Household Goods, Health and Education

Not all non-food components experienced significant pressure.

Inflation in clothing and footwear moderated to:

2.2% during April-December 2025

from 2.7% a year earlier.

The report links this moderation to:

lower domestic cotton prices;
lower international cotton prices; and
subdued export demand for textiles and wearing apparel.

Inflation in household goods and services, health and education remained broadly stable during 2025-26.

22. CPI-IW Inflation

Another inflation measure highlighted by the RBI is the:

Consumer Price Index for Industrial Workers (CPI-IW)

CPI-IW inflation moderated to:

3.1% in 2025-26

from:

3.4% in 2024-25

The principal driver was lower food inflation.

23. CPI-AL and CPI-RL: Another Important Update

The base of the CPI series for:

Agricultural Labourers (CPI-AL)
Rural Labourers (CPI-RL)

was revised in July 2025.

The base changed from:

1986-87 → 2019=100

The revised basket was based on the Household Consumption Expenditure Survey (2011-12).

An important structural change was a significant reduction in the weight of food and non-alcoholic beverages.

Series	Earlier food & non-alcoholic beverages weight	New weight
CPI-AL	69.2%	57.9%
CPI-RL	66.8%	56.6%

The average inflation during May 2025-March 2026 stood at:

CPI-AL: 1.0%
CPI-RL: 1.1%

24. WPI Inflation: Another Major Disinflation Signal

Wholesale price inflation also moderated sharply.

WPI inflation:

2025-26: 0.7%

2024-25: 2.3%

The main reasons were:

deflation in primary articles; and
deflation in fuel and power.

25. WPI Components — Important Numbers

WPI component	Weight	Inflation/Deflation 2025-26
Primary articles	22.6%	-1.1%
Fuel & power	—	-2.9%
Manufactured products	64.2%	2.3%
Overall WPI	—	0.7%

Primary articles

Primary articles moved from:

+5.2% inflation → -1.1% deflation

This was driven by favourable supply and weather conditions.

Fuel and power

Fuel and power deflation deepened from:

-1.3% → -2.9%

The report links this to easing global energy prices.

Manufactured products

Manufactured-product inflation increased from:

1.7% → 2.3%

with pressure from:

chemicals;
fabricated metal;
paper; and
food products.

26. CPI vs WPI: What Does the Report Tell Us?

The report notes that although CPI and WPI have diverged during certain periods in the past, they moved broadly in tandem in the recent period.

The broad 2025-26 picture was:

CPI

2.1%

WPI

0.7%

Both showed substantial moderation.

This indicates that the disinflationary environment was not confined purely to retail consumer prices; wholesale price pressures were also subdued.

27. GDP Deflator Inflation

Another important indicator mentioned by the report is:

GDP deflator-based inflation

It declined to:

0.9% during April-December 2025

from:

2.5%

during the corresponding period of the previous year.

Why is this useful?

For examination purposes, remember the distinction:

CPI → consumer/retail price perspective
WPI → wholesale price perspective
GDP deflator → broader economy-wide price measure associated with domestically produced final goods and services

The report’s 2025-26 evidence showed moderation across all three measures.

28. MSP and Inflation: The Agricultural Price Link

Minimum Support Prices are also relevant to the inflation discussion because administered agricultural prices can influence farmers’ incentives, production and ultimately food availability.

The government increased MSPs for major:

kharif crops; and
rabi crops.

The stated objective was to ensure a:

Minimum return of 50% over the cost of production

The increase was in the range of:

1.0%–13.9% for kharif marketing season 2025-26
4.0%–10.1% for rabi marketing season 2026-27

The cost concept referred to was:

A2 + FL

i.e. actual paid-out cost plus value of family labour.

29. Why MSP Matters for Inflation Analysis

For exam purposes, understand the two-sided effect.

Higher MSP can:

Increase farmer price incentives → encourage production → improve supply → potentially moderate future food inflation

But at the same time:

Higher administered procurement/support prices → can influence market prices → may create price pressure in certain commodities

Therefore, MSP should not be described mechanically as either “inflationary” or “anti-inflationary”.

Its eventual effect depends on:

production response;
procurement;
market arrivals;
stocks;
imports/exports;
government intervention; and
demand conditions.

The Annual Report itself places the MSP discussion alongside agricultural production and food-supply developments.

30. The Inflation Story in One Flowchart

For rapid revision, reduce the entire chapter to this:

Favourable weather + record food production + comfortable stocks

↓

Higher market arrivals and food availability

↓

Vegetables, pulses and cereals prices moderate

↓

Food inflation turns negative

↓

Headline CPI falls sharply

↓

CPI inflation averages 2.1%

But simultaneously:

Gold + silver prices rise

↓

Core inflation remains elevated

And:

LPG price increases

↓

Fuel inflation rises

Therefore:

Headline inflation ↓ sharply, but core and fuel pressures were not uniformly benign.

31. Most Important Numbers from the Inflation Chapter

Indicator	2025-26 figure	Exam significance
Headline CPI inflation	2.1%	⭐⭐⭐⭐⭐
Food & beverages inflation, Apr-Dec 2025	-0.8%	⭐⭐⭐⭐⭐
Food inflation, previous comparable period	7.6%	⭐⭐⭐
Vegetable inflation, Apr-Dec 2025	-19.4%	⭐⭐⭐⭐
TOP deflation, first 3 quarters	-31.3%	⭐⭐⭐⭐
Pulses deflation, first 3 quarters	-13%	⭐⭐⭐⭐
Cereals inflation, Apr-Dec 2025	2.4%	⭐⭐⭐
Oils & fats price increase, Apr-Dec 2025	15%	⭐⭐⭐⭐
Mustard oil inflation, Aug 2025	24.2%	⭐⭐⭐
Fuel inflation, Apr-Dec 2025	2.4%	⭐⭐⭐
Fuel inflation, March 2026	0.9%	⭐⭐⭐
Core inflation, Apr-Dec 2025	4.3%	⭐⭐⭐⭐⭐
Core inflation, Jan-Mar 2026	3.7%	⭐⭐⭐⭐
CPI-IW inflation	3.1%	⭐⭐⭐
WPI inflation	0.7%	⭐⭐⭐⭐⭐
WPI primary articles	-1.1%	⭐⭐⭐
WPI fuel & power	-2.9%	⭐⭐⭐
WPI manufactured products	2.3%	⭐⭐⭐
GDP deflator inflation, Apr-Dec 2025	0.9%	⭐⭐⭐
New CPI base	2024=100	⭐⭐⭐⭐⭐
New CPI divisions	12	⭐⭐⭐⭐⭐
Food & beverages weight	36.8%	⭐⭐⭐⭐⭐
Food & beverages old weight	45.9%	⭐⭐⭐⭐
Core weight under new CPI	53.0%	⭐⭐⭐
LPG increase, April 2025	₹50/cylinder	⭐⭐⭐
LPG increase, March 2026	₹60/cylinder	⭐⭐⭐
Kharif MSP increase range	1.0–13.9%	⭐⭐⭐
Rabi MSP increase range	4.0–10.1%	⭐⭐⭐
MSP return over A2+FL	50%	⭐⭐⭐⭐

32. RBI Grade B / Promotion Exam: What You Must Remember

If you have limited revision time, prioritise these facts in exactly this order.

Tier 1 — Absolutely Must Know

Headline CPI inflation = 2.1% in 2025-26
Main reason = food deflation + favourable base effect
New CPI series = 2024=100
Released on February 12, 2026
New CPI structure = 12 divisions
Food & beverages weight = 36.8%, down from 45.9%
Core inflation = 4.3% during April-December 2025
Gold and silver were major drivers of core inflation
WPI inflation = 0.7%
LPG price increases pushed up fuel inflation

Tier 2 — Very Important

Vegetables = -19.4%
Pulses = -13%
TOP = -31.3%
Cereals = 2.4%
Oils and fats = 15%
CPI-IW = 3.1%
GDP deflator inflation = 0.9%
CPI 2012=100 and 2024=100 are not strictly comparable
Core excluding gold and silver was relatively benign
MSP ensured minimum return of 50% over A2+FL

33. Possible RBI Grade B Descriptive Questions

Question 1

“India witnessed significant disinflation during 2025-26. Examine the major drivers of the moderation in CPI inflation.”

Answer framework

Introduction:
Headline CPI inflation moderated sharply to 2.1%.

Body:

food deflation;
favourable base effects;
improved foodgrain availability;
comfortable buffer stocks;
higher market arrivals;
favourable weather;
government supply management;
trade-policy measures;
GST rationalisation.

Counterpoint:

precious metals pushed up core inflation;
LPG price increases raised fuel inflation;
fruits and oils/fats experienced price pressures.

Conclusion:
The inflation moderation was broad but uneven, with food disinflation doing most of the heavy lifting.

Question 2

“Discuss the changes introduced in India’s CPI series with base 2024=100 and their significance.”

Cover:

February 12, 2026 release;
COICOP 2018;
HCES 2023-24 weights;
six groups → 12 divisions;
food weight 45.9% → 36.8%;
greater weight of non-food consumption;
reclassification of prepared meals;
housing/fuel restructuring;
transport and information & communication separation;
non-comparability caution.

Question 3

“Core inflation remained elevated despite sharp moderation in headline inflation during 2025-26. Explain.”

The ideal answer should identify:

Gold + silver → personal care and effects → elevated core inflation

and then explain that:

excluding gold and silver → core inflation moderated, helped by GST-related price corrections, especially in motor vehicles and related components.

34. Prelims / Objective Exam Traps

Trap 1

CPI base 2024=100 was released in January 2026.

❌ Incorrect.

Correct: February 12, 2026.

Trap 2

Food and beverages weight increased under the new CPI series.

❌ Incorrect.

45.9% → 36.8%.

Trap 3

New CPI has six divisions.

❌ Incorrect.

It has 12 divisions.

Trap 4

Core inflation was lower in April-December 2025 than the previous year.

❌ Incorrect.

4.3% vs 3.4%.

Trap 5

Gold and silver reduced core inflation.

❌ Incorrect.

They were a major source of upward pressure.

Trap 6

WPI inflation increased to 2.3%.

❌ Incorrect.

WPI = 0.7%, down from 2.3%.

Trap 7

Vegetables were a major source of food inflation.

❌ Incorrect.

Vegetables recorded 19.4% deflation during April-December 2025.

35. Final Exam Revision: 15 Lines

Headline CPI inflation 2025-26 = 2.1%.
Main disinflation driver = food deflation.
Strong favourable base effects also helped.
Food & beverages inflation = -0.8% during Apr-Dec 2025.
Vegetables = -19.4%.
TOP = -31.3% in first three quarters.
Pulses = -13% in first three quarters.
Oils & fats = +15% in Apr-Dec.
Fuel inflation = 2.4% Apr-Dec, with LPG the key driver.
Core inflation = 4.3% Apr-Dec.
Gold and silver accounted for nearly half of core inflation in H2.
New CPI = 2024=100, released February 12, 2026.
New CPI = 12 divisions, food weight 36.8%.
WPI inflation = 0.7%.
GDP deflator inflation = 0.9% Apr-Dec 2025.

Key Takeaways

The RBI Annual Report FY 2025-26 describes 2025-26 as a year of pronounced inflation moderation.
Headline CPI inflation averaged 2.1%.
Food deflation and favourable base effects were the principal drivers.
Food and beverages prices declined 0.8% during April-December 2025.
Vegetables, pulses and cereals were major sources of food disinflation.
TOP prices recorded 31.3% deflation during the first three quarters.
Pulses recorded 13% deflation during April-December.
Inflation was not uniformly benign: fruits and oils/fats experienced significant price pressures.
Fuel inflation increased because of LPG price increases.
Core inflation averaged 4.3% during April-December 2025, mainly because of precious metals.
Gold and silver accounted for nearly half of core inflation in H2 2025-26.
The new CPI series, 2024=100, was released on February 12, 2026.
The new CPI has 12 divisions, with food’s weight reduced from 45.9% to 36.8%.
WPI inflation moderated to 0.7%.
GDP deflator inflation fell to 0.9% during April-December 2025.
MSP increases for major crops ensured a minimum return of 50% over A2+FL cost.

Next Part — Part 5

RBI Annual Report FY 2025-26: Money and Credit — Reserve Money, Deposits, Bank Credit & Sectoral Lending

The next article will move from prices to monetary and financial conditions, covering the evolution of:

Reserve Money → Money Supply → Bank Deposits → Bank Credit → Credit Growth → Sectoral Lending → NBFC Credit → Financial Conditions

with the important numbers and exam-oriented interpretation from the Annual Report.