Overview of India's January Retail Inflation
India's retail inflation for January was reported at 2.75%, marking the first reading under the revised Consumer Price Index (CPI) series, using 2024 as the base year. This is the first time inflation has fallen within the Reserve Bank of India's (RBI) target band of 2-6% since August 2025.
Key Features of the New CPI Series
- The new CPI series captures changing consumption patterns with a revamped basket of 358 items, revised weights, and an updated base year of 2024.
- Food items, known for their volatility, now have a reduced weight of 37%, down from 46%.
- Data collection has been updated to include 1,465 rural and 1,395 urban markets, and 12 online marketplaces.
Inflation Dynamics
- Sequentially, inflation increased by 0.3% in January, compared to 1.33% in December using the old 2012 base year.
- Food inflation returned to a positive 2.13%, with significant increases in tomato prices (64.8%), despite decreases in onion (29.3%), potato (29%), and garlic (53%) prices.
- The Reserve Bank's inflation target remains at 4% with a tolerance band of 2% on either side.
Future Projections and Economic Insights
- RBI's inflation projection for the current fiscal year has been increased to 2.1%.
- Economists foresee a potential rise in inflation in coming months, possibly halting interest rate cuts.
- The RBI's Monetary Policy Committee maintained the benchmark repo rate at 5.25% in February.
Implications of the New CPI Series
- International trends show that as incomes rise, expenditure on food decreases while spending on services increases, a shift reflected in the CPI's new composition.
- Chief Economic Adviser V Anantha Nageswaran suggests a shift in monetary policy focus towards managing aggregate demand pressures.
- The new CPI series aligns India with global best practices in macroeconomic data collation and presentation.
The revised CPI series has led to requests for excluding food from the central bank's inflation framework, which is under review. Sequential numbers suggest food prices are stabilizing, with a 0.05% decrease from December to January.
