Gold, coconut oil and consumption: Inside Kerala's inflation streak

Kerala's retail inflation hit 9.49% in December, topping all states for the seventh straight month, driven by soaring coconut oil, gold prices and rural cost pressures

Kerala’s retail inflation rate in December 2025 has cemented its unwanted top spot among Indian states, rising to 9.49 per cent after seven consecutive months of leading the inflation charts. The spike sharply contrasts with an all-India average inflation rate of 1.33 per cent, and dwarfs readings in other states — Goa and Karnataka, the next highest, posted relatively muted inflation rates of 3.18 per cent and 2.99 per cent, respectively, in December. 

The state’s retail inflation accelerated from 8.27 per cent in November to hit the highest state-level inflation point in 12 months, since Manipur’s 10.12 per cent in December 2024. 

 

Kerala’s consumer price index (CPI) has climbed relentlessly since June 2025, when it topped state rankings at 6.76 per cent against India’s average of 2.1 per cent. According to inflation numbers, rural areas have borne the brunt, with December inflation hitting 10.77 per cent, compared to 7.13 per cent in urban zones. This gap persisted through the second half of 2025, with inflation in rural areas hovering above 9-10 per cent from July onwards, while figures for urban zones staying below 7.2 per cent. 

According to Madhavankutty G, chief economist at Canara Bank, the rural-urban inflation divide is not quite stark as the highly urbanised nature of the state suggests that there are hardly any rural pockets in the strict sense of the term like in North India.

Nationally, India's inflation has remained subdued, dipping to 0.25 per cent in August before edging up modestly, underscoring Kerala’s divergence.  

Breaking it down 

Explosive price rises in sub-groups of essential commodities are driving the surge, according to the data. Prices of personal care and effects (under the miscellaneous group) increased by 59.20 per cent; oils and fats by 57.56 per cent; meat and fish climbed 12.85 per cent; fruits rose by 8.86 per cent, and eggs by 7.72 per cent in December. 

Economists attribute Kerala’s high retail inflation to state-specific consumption patterns, with primary drivers being the high prices and consumption for coconut oil, gold and silver. Madhavi Arora, chief economist at Emkay Global Financial Services, says that the oils and fats index in Kerala has remained in double-digit inflation since August 2024, and was as high as 128 per cent in August 2025, driven largely by a sharp surge in coconut oil prices, a mass-consumption item in the state. 

Both Arora and Madhavankutty reckon that the rising prices of gold acts as a major inflationary impulse in Kerala due to the state’s high consumption of it. “The precious metals price surge has affected Kerala’s CPI basket disproportionately since the weight of the personal care and effects basket is far higher. Again, precious metals are purchased/consumed far more in Kerala than the national average, and thus the price surge for these has had a disproportionate impact on the state’s CPI numbers,” Arora adds. 

Madhavankutty also suggests that Kerala has to invariably depend on other states for major agricultural produce as many farm areas there have been leveled for construction purposes, hence pushing up prices through transportation costs. “Even coconut oil where Kerala enjoyed a monopoly once has to be now imported from neighbouring states,” he says. “Wage rates are one of the highest in Kerala leading to wage price spirals and finally being a remittance driven state per capita income and general purchasing power is much higher than national average contributing to inflationary pressures,” he adds. 

Price politics 

As costs bite deeper in a remittance-rich state, the Left Democratic Front (LDF) government, currently in its second term under Pinarayi Vijayan, defends its playbook while the opposition cries foul over market mismanagement. 

Kerala’s Finance Minister K N Balagopal told Business Standard that high inflation is only because of two temporary and transient factors: gold and coconut oil. “All the other prices are either stagnant or even falling, as shown by CPI numbers. The weight for gold is unduly high in the estimation process for Kerala,” he says. 

R Ramakumar, member of the Kerala State Planning Board, attributes the spike to factors largely beyond the state’s control, as well as to Kerala’s highly consumerist nature. He further notes that successive dilutions of the Essential Commodities Act, 1995, has limited the ability of the state to intervene directly in market price control. 

Kerala’s primary lever, hence, has been subsidised distribution. “13 essential items have been provided at 2016 price levels. The state government spends an average of ₹350 crore annually solely through Supplyco for such market interventions.  Efficient market interventions are also conducted through outlets under the cooperation department,” Ramakumar notes. 

The opposition United Democratic Front (UDF), led by the Congress, has accused the Kerala government of failing in effective market intervention measures and monitoring the market prices. It has further demanded a more realistic approach by the government to handle inflation.