Inflation is low, but policymakers cannot take their eye off the ball

India’s headline inflation rate rose by 0.7 per cent in November. In other words, the overall price level in the economy rose by less than a per cent this November when compared to where it was 12 months ago. By itself, this confirms what the Governor of Reserve Bank said in the recent monetary policy review: That inflation at “a benign 2.2 per cent” (for the full year) and growth at 8.0 per cent in the first half of the current financial year “present a rare goldilocks period” for the economy. While the November number is low, it was a modest increase over the inflation rate in October. But the turnaround is not entirely surprising since inflation hit a record low of 0.3 per cent in October. Nor can the uptick be necessarily called a rebound since the move is too small and that too over just one month.

The low November print has been part of the larger disinflation trend. In October 2024 India’s inflation rate was 6.21 per cent; higher than the RBI’s comfort zone of 2-6 per cent. But since then, there has been an almost secular decline in the inflation rate — disinflation — barring two instances (August and November) when the inflation rate moved up. The fall has been so substantial that in the second quarter of the current financial year (July, August and September), the average headline inflation for a quarter came in at 1.7 per cent — lower than the RBI’s comfort zone. In fact, this is the first time since the adoption of the flexible inflation targeting regime in August 2016 that the lower bound of the RBI’s comfort zone has been breached.

Policymakers would do well to keep their eyes peeled for changes in underlying factors that determine headline inflation. There is a difference between headline inflation and core inflation (that is, inflation after the effect of food and fuel items is removed). The bulk of the disinflationary trend is because of a sharp collapse in food prices. Food inflation was almost 10 per cent in October last year but it has been in negative territory since June this year. Since food items account for almost 50 per cent of the weight in calculating retail inflation, the deflation in food prices moves the headline number quite substantially in either direction. If one takes away food prices, core inflation has actually been trending up over the past year and stands at 4.3 per cent — from 0.7per cent. While gold is a key culprit for this divergence, it underscores how policymakers cannot take their eyes off the ball.

Overall Analysis

The editorial examines India’s recent low inflation numbers while cautioning against complacency in economic policymaking. It opens with a clear explanation of the November inflation data, using simple numerical comparisons to make the concept accessible. By referencing the RBI Governor’s description of a “Goldilocks period,” the author acknowledges the optimistic narrative currently shaping public perception of the economy. However, the language subtly introduces restraint, noting that the slight rise from October is neither unexpected nor significant enough to signal a reversal.

The argument then places the November figure within a broader historical trend of disinflation. By tracing inflation from above the RBI’s comfort zone to historically low levels, the editorial emphasizes the scale and rarity of the decline. The use of terms like “secular decline” and references to institutional milestones such as the adoption of flexible inflation targeting lend analytical depth and policy context. At the same time, the author avoids triumphalism, reinforcing that unusually low inflation can be as concerning as high inflation.

In the final section, the tone becomes more cautionary and technical. The editorial draws a clear distinction between headline and core inflation, explaining that the sharp fall in food prices is the primary driver of the low headline figure. The language here is instructive, guiding readers to look beyond surface numbers. By highlighting that core inflation has actually been rising, the author warns policymakers to monitor underlying pressures rather than rely on headline comfort. The closing sentence reinforces the central metaphor — policymakers must remain vigilant despite favourable data.

Overall, the editorial balances reassurance with warning, using precise economic terminology while maintaining clarity and coherence.

Important Vocabulary (5)

1. Benign – mild and not harmful.
2. Uptick – a small increase.
3. Disinflation – a reduction in the rate of inflation.
4. Secular – long-term and not temporary.
5. Divergence – a difference or separation between two trends.

Conclusion & Tone

The editorial concludes that while India is currently experiencing unusually low inflation, this is largely driven by falling food prices and masks rising core inflation. Policymakers must therefore remain alert to underlying price pressures rather than be reassured by headline figures alone.

Tone: Analytical, cautious, and advisory.