The US consumer price index, which measures the costs of goods and services to individuals, rose just 0.1% in December, the Commerce Department said in its monthly report.
"For 12 consecutive months from November 2016 to October 2017, the CPI inflation remained below 4 percent..."
In December 2015, the retail inflation, based on Consumer Price Index (CPI), was 3.41 per cent.
Analysts said any sharp rise in state spending in the budget that fuels inflation could force the central bank to raise rates earlier than expected.
The RBI holds its next policy review on February 7. "However, the reversal of other transient factors such as the expected seasonal moderation in food prices may help to cool inflation", Aditi Nayar, Principal Economist at ICRA said.
For the full year, CPI rose 2.1%, the same as 2016, while core CPI slowed, posting a 1.8% increase after the 2.2% gain in the previous year. Food prices rose 0.2% after being unchanged for two straight months.
Along with the shelter index, the indexes for medical care, used cars and trucks, new vehicles, and motor vehicle insurance also increased in December. Owners' equivalent rent of primary residence climbed 0.3% after gaining 0.2% in November. The consensus is for 0.5%, while it was 0.8% in November.
Sales last month were supported by a 1.2% jump in receipts at gardening and building material stores.