The Economic Survey 2025-26, tabled in Parliament on Thursday by Finance Minister Nirmala Sitharaman, recorded a decisive cooling of retail inflation across India’s states during the current financial year, even as it cautioned that state-level price pressures persist, shaped by local factors rather than fleeting shocks.According to the survey, state-level inflation during April-December 2025 broadly tracked the national trend, with an “across-the-board reduction” in prices.Except for Kerala and Lakshadweep, where retail inflation breached the Reserve Bank of India’s upper tolerance limit of 6 per cent, all states and Union Territories remained within the RBI’s 2-6 per cent band or below it. All-India headline inflation stood at 1.72 per cent in this period, sharply lower than 4.63 per cent in 2024-25 and 5.36 per cent in 2023–24.In northern India, Punjab, Haryana, Himachal Pradesh, and Jammu & Kashmir reflected this moderation, though each followed a distinct trajectory. Punjab’s inflation eased to 3.27 per cent in April-December 2025-26, down from 4.16 per cent in 2024-25 and 5.53 per cent the year before. The decline places Punjab marginally above the national average but firmly within the RBI’s tolerance band, reflecting easing food and core prices after two years of elevated readings.Haryana recorded one of the sharpest drops among large states. Inflation fell to 1.61 per cent in the current year so far, compared with 5.23 per cent in 2024-25 and a high of 6.60 per cent in 2023-24. The survey’s data show Haryana moving from persistently high inflation to well below the national average within two years, underscoring the impact of cooling commodity prices and improved supply conditions.Himachal Pradesh, a hill state often affected by transport and weather-related costs, recorded inflation of 2.17 per cent during April-December 2025-26, down from 4.04 per cent last year. Over the four years covered in the Survey’s table, Himachal Pradesh consistently remained below or close to the all-India average, a pattern that the survey later identified as relatively stable, with price deviations showing persistence but not volatility.Jammu & Kashmir reported inflation of 3.60 per cent in the current year so far, higher than the national average but lower than its own levels of 4.48 per cent in 2024–25 and 6.34 per cent in 2022-23. The survey noted that while far-end and geographically distinct regions often see higher inflation, the UT has also benefited from the broader national disinflationary trend.Across other states, the moderation was even more pronounced. Delhi’s inflation fell to 0.96 per cent, Bihar to 0.01 per cent, Assam to 0.16 per cent, and Odisha to 0.12 per cent. Several states, including Telangana at 0.20 per cent and Uttar Pradesh at 0.30 per cent, recorded near-zero inflation, highlighting the depth of the price correction underway. At the other end of the spectrum, Kerala recorded inflation of 8.05 per cent and Lakshadweep 6.69 per cent, making them the only regions to breach the RBI’s upper tolerance threshold.The survey noted that the clustering of inflation outcomes within the tolerance band suggests “increasing synchronisation of inflation across states”. However, a deeper analysis of monthly CPI data from January 2014 to December 2025 showed that differences between states and the national average are not merely temporary. All states exhibited positive persistence in inflation gaps, meaning deviations tend to spill over into subsequent months rather than fade immediately.Southern and north-eastern states generally recorded inflation above the national average with relatively higher persistence. In contrast, Delhi and Himachal Pradesh were typically below the all-India average, with comparable persistence. States such as Punjab and Haryana clustered closer to the national mean, though the duration of price pressures varied.The survey further noted that wage dynamics are a key driver of these differences. States with average wage rates above the national level tend to experience higher inflation. State-level inflation also shows a significant positive association with GDP growth rates and the impact of COVID-19, indicating that faster growth and pandemic-related disruptions contributed to higher prices.In contrast, a higher share of industrial output has a negative association with inflation, reflecting the role of manufacturing efficiencies in dampening price pressures. GST was found to be price-neutral in explaining state-level inflation differentials.On the outlook, the survey noted that both the RBI and the IMF expect inflation to rise gradually towards the 4 per cent target but remain within the tolerance band. In December 2025, the RBI revised its FY26 inflation projection down from 2.6 per cent to 2.0 per cent, citing a strong kharif harvest and healthy rabi sowing. The IMF has projected inflation at 2.8 per cent in FY26 and 4.0 per cent in FY27. The RBI’s forecast for FY27 stands at 3.9 per cent in the first quarter and 4.0 per cent in the second.Below-normal temperatures through much of 2025, above-normal monsoon rainfall, and improved reservoir levels have supported foodgrain output and stocks, factors that the Survey noted are likely to keep food inflation moderate. Increased fertiliser supply and the continued pass-through of GST rate rationalisation into commodity prices may further ease cost pressures, though currency depreciation remains a risk for imported inflation.