Gold, silver prices surge: RBI adds precious metals to inflation monitoring framework with onions, tomatoes

The Reserve Bank of India (RBI) has expanded its inflation monitoring framework to include gold and silver prices alongside traditionally tracked commodities such as onions and tomatoes. Elevated prices of gold and silver have prompted the central bank to reassess inflation dynamics, even as overall price conditions remain mostly steady. Market observers note that this step aims to offer a more comprehensive gauge of inflationary pressures in an economy heavily exposed to global price shifts and domestic consumption trends.

Core inflation

Core inflation, measured as the Consumer Price Index (CPI) excluding food and fuel, has stayed subdued despite rising precious metals prices. Data from December show core inflation holding at 2.6% when gold and silver are excluded, indicating that underlying price pressures in other sectors remain contained. This suggests that the current inflationary focus is being driven primarily by movements in the bullion segment, rather than by broader economic overheating.

The RBI has cautioned that geopolitical risks, volatility in energy markets, and weather changes could introduce upside risks to inflation in the months ahead. Unfavourable base effects may result in an uptick in year-on-year headline inflation approaching the end of 2025–26, even if overall inflationary momentum appears soft. The central bank continues to monitor these factors, emphasising the importance of vigilance given the heightened unpredictability in global markets.

Gold, silver prices

Prices of gold and silver have experienced substantial increases over the past year, reinforced by global uncertainty and geopolitical tensions. The surge in precious metals prices is attributed to factors such as a weakening US dollar, expectations of continuing negative real interest rates, and heightened investor concern about geopolitical and financial risks. On Thursday, gold closed at Rs 1,48,860 per 10 grams, following a 1.24% decline, illustrating its recent volatility.

The latest Economic Survey highlights that unless geopolitical tensions abate and trade-related uncertainties diminish, gold and silver prices are likely to stay elevated. In response, the RBI’s explicit inclusion of precious metals in its inflation assessment signals a recognition of their increasing weight in shaping domestic price levels. This adjustment underscores the central bank’s effort to align its policy framework with the realities of market conditions and consumer behaviour.

According to the MPC statement by the RBI, "The slight upward revision in the inflation outlook is primarily due to an increase in prices of precious metals, which contribute about 60-70 basis points." This highlights the notable impact of gold and silver prices on the current inflation forecast and reinforces their significance in the policy dialogue.

Inflation pressures subdued

Despite the focus on precious metals, the RBI has reiterated that underlying inflation pressures remain subdued, with risks balanced and headline inflation forecast to remain near the central bank’s target in the coming quarters. Food inflation, in particular, is expected to stay under control, supported by robust agricultural output, healthy foodgrain stocks, and favourable sowing conditions. This outlook suggests that, barring volatility in the precious metals segment, broader inflation trends should remain relatively stable.

India’s exposure to gold and silver is amplified by its reliance on imports, making domestic prices sensitive to global market movements and fluctuations in the rupee. The country’s strong cultural affinity for gold and the dominant role of precious metals in household investment reinforce the transmission of international price changes to the domestic economy. A weaker currency further elevates the cost of gold and silver, influencing consumption habits and inflation trends.