New inflation count a clearer view of consumption shift
Retail inflation quickened to 2.75 percent in January under the revised data series with 2024 as the base year. It stood at 1.33 percent in December and 0.71 percent in November, when the old Consumer Price Index series was in effect. January’s sharp rise perhaps confirms that we have been under- or over-estimating price rise in recent times. For instance, food inflation under the 2012 series was in negative territory for seven straight months, with the December print at -2.71 percent. But it’s now estimated at 2.13 percent in January under the revised series, which also assigned lower weights to food and beverages at 36.75 percent against the earlier 45.86 percent. This is significant given the high volatility of food prices and their outsized influence on headline inflation. According to Nomura, lower weighting of food may see higher spot inflation readings, as the deflationary trend in prices has kept headline inflation low.
The data overhaul is needed to reflect the changing household consumption patterns. The new series expanded market coverage, and changed the composition of items in baskets and data collection methods to provide a more accurate reflection of spending. The previous revision happened a decade ago; but the government now seems willing to undertake further revisions every 3-5 years, in line with global best practices. An outdated base year was among the key concerns flagged by the IMF last November, as it was not reflecting the structural shifts in spending. Accurate data is essential for monetary policy action, besides other decisions including welfare benefits and public distribution. Importantly, the revised series eliminates obsolete items like cassettes and tape recorders, making way for housing rent, airfare and digital services like OTT platforms to capture a broader consumption mix.
India’s lowest inflation recorded under the previous CPI series came at an average of 1.7 percent during April-December 2025. For 2026-27, a moderate uptick in the headline rate is expected, though it will likely remain within the RBI’s 2-6 percent target band. The central bank refrained from providing advance annual estimates last week, and its read on next fi scal’s infl ation will be known only in April. The expectation that the headline rate would remain elevated in the near term reduces the scope for a repo rate cut anytime soon.