Published Jan 29, 2026 | 6:41 PM ⚊ Updated Jan 29, 2026 | 6:41 PM
The Economic Survey noted that southern and north-eastern States more often recorded inflation above the national average.
Synopsis: Kerala recorded the highest retail inflation in the country at 8.05 percent in 2025–26 (April–December), breaching the Reserve Bank of India’s upper tolerance band of 6 percent, even as inflation fell sharply across most States and Union Territories, the Economic Survey 2025–26 shows. The report notes Kerala’s divergence could be due to higher wage levels and faster State economic growth, and that factors such as GST, lending rates and agriculture do not show a strong link to State-level inflation.
Kerala has defied the national trend of a steady decline in inflation since the post-pandemic period beginning 2022–23.
It recorded the highest inflation among all States and Union Territories in the current fiscal year at 8.05 percent, up from 5.89 percent in 2024–25, 4.97 percent in 2023–24, and 5.97 percent in 2022–23, according to data from the Ministry of Statistics and Programme Implementation cited in the Economic Survey 2025–26.
The trajectory stands out as India’s headline inflation fell to 1.72 percent in 2025–26 (April–December), down from 6.66 percent in 2022–23.
Kerala is one of only two regions, along with Lakshadweep, where retail inflation breached the Reserve Bank of India’s upper tolerance band of 6 percent in 2025–26 (April–December). In all other States and Union Territories, inflation remained within the RBI’s 2–6 percent band or below it.
In the latest year, over two-thirds of States and Union Territories reported inflation below 3 percent, and more than a dozen recorded rates below 1 percent, including one case of deflation.
Compared with 5.79 percent in 2022–23, Kerala’s inflation has risen by 2.26 percentage points over four years. It is the only southern State, and the highest among all States and Union Territories, to record a net increase over this period.
At the other end of the spectrum, the two Telugu states topped the list. Telangana and Andhra Pradesh recorded inflation of just 0.20 percent and 1.39 percent respectively in 2025–26.
Tamil Nadu and Karnataka, meanwhile, recorded figures above the national average at 2.45 percent and 3.14 percent respectively in 2025–26, the data shows.
Telangana’s inflation fell sharply from 8.61 percent in 2022–23 to 6.36 percent in 2023–24, 3.67 percent in 2024–25, and 0.20 percent in 2025–26. The cumulative decline of 8.41 percentage points is the steepest among all States.
Andhra Pradesh recorded inflation of 1.39 percent in 2025–26, down from 4.41 percent in 2024–25, 5.54 percent in 2023–24, and 7.57 percent in 2022–23.
Tamil Nadu’s inflation fell steadily from 5.95 percent in 2022–23 to 5.42 percent in 2023–24, 4.65 percent in 2024–25, and 2.45 percent in 2025–26. The downward trend follows the national pattern, though the State remains above the all-India rate.
Karnataka recorded 5.49 percent in 2022–23, edged up to 5.79 percent in 2023–24, and then declined to 4.93 percent in 2024–25 and 3.14 percent in 2025–26.
In contrast, several large northern States—Uttar Pradesh (0.30 percent), Madhya Pradesh (0.75 percent), and Rajasthan (0.81 percent)—reported inflation below the all-India figure. Gujarat and Maharashtra recorded 1.31 percent and 2.13 percent, respectively.
At the lower end, Manipur recorded deflation at –0.15 percent, while Odisha reported inflation of 0.12 percent.
The Economic Survey noted that southern and north-eastern States more often recorded inflation above the national average.
The key driver of this difference is wages, it noted. States with average wage levels above the national average tend to have higher inflation. Faster State GDP growth and the post-COVID shift in prices also push inflation up.
By contrast, a higher share of industrial output pulls inflation down, suggesting that manufacturing capacity helps contain prices.
“A recent study has also highlighted the significance of wage rates in increasing inflation disparity across the states. Our further analysis demonstrated that the state-level inflation rates show a significant positive association with wage rates, state-level GDP growth rates and COVID impact (indicating inflation increases with the increase in wage rate and GSDP growth rate, and that COVID had a structural step-up influence on the price situation),” the report reads.
Notably, other factors such as GST, lending rates, fiscal deficits, credit levels, and the share of agriculture do not show a clear link once State-specific factors are accounted for.
“GST imposition was found to be price neutral for state-level inflation differential. Variables such as weighted average lending rate, fiscal deficit ratio and credit intensity do not exhibit a robust independent association with inflation once state-specific and year-specific effects are accounted for in the 10-year duration. The share of agricultural output did not seem to have a meaningful impact at the local level for the 10-year duration under study as production structures may be oriented more to national and export markets rather than flooding the local markets,” the report reads.
