MUMBAI: Economists expect FY27 headline inflation to be 35-50 bps lower than the RBI forecast in FY27 due to the higher weight given to core inflation and the marginally lower weight given to the food basket, which in the old series had the highest weight of over 42%, in the new inflation series with base year of 2024 as they expect underlying price pressures to remain contained going forward.
The new series has the base year changed to 2024 from the earlier 2012, along with a change in weights of items in the CPI basket. In the new series, the item basket will comprise of 354 items, up 19% from the old series. Of which the share of food and beverages came down to 36.75% from 45.86% earlier.
Core inflation, which doesn’t include volatile components of CPI such as food and fuel, has a weight of 58% in the new CPI series, up from 47% in the old series. Also, in the new series, the number of items have risen to 358 from 299 earlier. Within this, goods items have increased from 259 to 308, and services items have increased from 40 to 50.
The January price index showed headline inflation at 2.75%, and core inflation at 3.4% as against a forecast of 2.6%, and 5.1%, respectively, based on old series. Notably, core inflation dropped sharply in January from a 28-month high of 4.6% in December.
Their optimism comes primarily from the higher weight of core inflation in the new inflation series, which has dropped sharply in January from a 28-month high of 4.6% in December.
But on the flip side, they also see the Reserve Bank keeping the policy rates unchanged amid stable inflation with some even expecting the central bank to hike the repo rates from the second half of the next fiscal.
In the latest monetary policy announcement on February 6—before the new inflation series was unveiled yesterday—the central bank had forecast FY26 CPI at 2.1% with Q4 printing in at 3.2%. CPI for Q1 and Q2 FY27 are projected at 4% and 4.2% as it expects excluding precious metals, the underlying inflation pressures remain muted.
Abhishek Upadhyay, senior economist at ICICI Securities sees CPI inflation printing in at 4% in FY27 (RBI has given only forecasts for the first two quarters now), about 50 bps lower than the previous estimate based on old series, as core inflation has a bigger weight in the new series.
Across services and other categories of core basket, inflation is lower than 2% in January. That is why headline print would be lower in FY27 to the tune of about 50 bps, he added.
Aditi Nayar, chief economist at Icra Ratings, also expects the price index to have a muted growth next fiscal “with a somewhat lower weight for food basket in the new series, the expected base-effect led uptick in the headline print in FY27 would likely be tempered.” But she has not given any target.
“The new CPI series is not comparable to the old series owing to the change in composition, weights and calculation methodology. Nevertheless, with a dip in the weight of the food and beverages segment from 42.3% to a little over 37% now, we expected the headline print to be slightly higher than our estimate of 2.5% for January as per the old series,” Nayar said.
Sakshi Gupta and Deepthi Mathew, the economists at HDFC Bank also said broadly, the data do not present any major negative surprises and confirm the moderating inflation trend witnessed over the last 12 months as on sequential basis, headline CPI rose by only 0.3%.
“We anticipate that inflation could start edging up over the coming months both on account on of a lower base effect and some increase in momentum both on food and core inflation. The new series suggests that inflation has averaged at 1.8% so far in FY26 (broadly unchanged from what the old series average was),” they said, adding they don’t see any more rate in FY27.
They estimate inflation at 2.1% for FY26 and 4.3% for FY27.
Sameer Narang, the chief economist at ICICI Bank, sees headline CPI printing in 35 bps lower than its previous forecast of 4.1% in FY27, as core inflation prints are likely to be far lower in the new series than the trajectory visible in the old series which is explained by expansion in markets, reclassification of weights and methodological changes.
Similarly, Gaura Sen Gupta, chief economist at IDFC First Bank sees FY27 headline inflation to be lower by 40 bps at 4.1% as against 4.5% on old series.
But economists from ANZ Bank, HDFC Bank and Motilal Oswal have kept their forecasts unchanged at 4.2%, 4.5% and 4.3%, respectively for FY27.
Bank of America economist Rahul Bajoria said the food prices may tick up in 2026 due to their cyclical nature which remains intact and food inflation normalizing back to around 5% in FY27 (close to decadal average of 5.1%).
Radhika Rao, senior economist at DBS Bank also does not expect a spike in inflation due to the new series and also monetary policy decisions saying, “we don’t expect the new inflation series to meaningfully influence policy decisions in the near term, with an extended rate pause likely, supported by a positive cyclical upswing and confidence effects stemming from the successful conclusion of US-India trade negotiations.
Similarly, Alexandra Hermann, the lead economist at Oxford Economics said, the revamped CPI makes headline inflation less about volatile food price swings and more about underlying demand. That won’t shift the RBI’s stance immediately, but if private consumption stays strong, inflation could heat up faster under the new weights, raising the risk of a rate hike already later this year, Hermann said without offering a target though.