A firming of prices, coupled with a revision of the gauge, pushed retail inflation to 2.75% in January, the highest print since August 2025, official data showed on Thursday, cementing the chances of an extended rate pause by the Reserve Bank of India (RBI).
The January inflation, measured by the revised consumer price index (CPI) with an updated base year of 2024, was largely on expected lines, though economists said the older series (2012 base) might have pegged inflation about 40 basis points lower. Annual retail inflation under the old series had stood at 1.33% in December, and 4.26% in January, 2025.
Structural Reset
The new series seeks to capture changing consumption patterns with revised weighting for components, notably food and housing. The weighting of food, the index’s most volatile component prone to supply shocks, has been slashed from 42.62% in the 2012 series to 36.75% in the new one, the National Statistics Office said.
Economists feel this change alone will reduce the “noise element” in the new index and make inflation figures more stable. Besides, housing represented by rents is added in a new category of “housing, water, electricity, fuel.”
The food inflation for January came in at 2.13%, sharply up from ( -)2.71% in December (old series). In January 2025, food inflation was recorded at 5.97%, but the relevant sub-index remained below the year ago level for the seven momths through December, represeting a deflation phase
Chief Economic Advisor V Anantha Nageswaran said that new CPI series provides policymakers with a more up-to-date basis for “assessing real incomes, consumption trends and purchasing power.” “Lower weighting for food and beverages may make headline inflation less volatile. Inflation could now become more driven by core (inflation) rather than food. By extending rent measurement to rural areas and improving sampling coverage, the CPI now (better) captures housing costs,” he said.
Some categories gained prominence in the new index. Transport’s weighting rose by 2.41 percentage points, personal care by 1.03 pp, furnishings by 0.81 pp and housing by 0.78 pp, reflecting evolving consumption patterns as spending shifts toward services and discretionary goods. The revised basket also expands the precious metals segment to include diamonds and platinum jewellery alongside gold, replacing the earlier gold-heavy mix.
Modernizing the Basket
Key additions in te revised CPI are rural housing, online media service provider/streaming services, value added dairy products, barley & its product, pen-drive & external hard disk, attendant, babysitter and exercise equipment. At the same time, obsolete items such as VCR/VCD/DVD players, hiring charges, radio, tape recorder, second-hand clothing, CD/DVD audio/video cassettes and coir/rope were removed.
Nageswaran said lower volatility would also help anchor inflation expectations in households and businesses. “If CPI volatility declines, it means that fiscal expenditure volatility, such as DA fixation, inflation indexed bonds, etc, which are linked to CPI, would also become more stable and more predictable and reliable, and this could give better budget predictability and disability as well to fiscal numbers,” he said.
In the Economic Surbey 2024-25, the CEA had suggested a review of the central bank’s inflation targeting framework to exclude food. However, then RBI governor Shaktikanta Das had maintained that food inflation could not be ignored due to its heavy weight in the consumption basket. The framework will come up for review next month.
In the new CPI, the number of weighted items has increased to 358 from 299, while surveyed markets have expanded across both rural and urban India and now include online markets. Services coverage has risen as well, improving representation of a consumption profile increasingly shaped by digital access, mobility and lifestyle spending. Earlier, rent data covered only urban areas; the new series includes rural rents for the first time.
The updated series draws weights and item coverage from the Household Consumption Expenditure Survey (HCES) 2023-24. The revision expands the classification to 12 divisions form six groups earlier to comply with Cassification of Individual Consumption According to Purpose (COICOP) 2018.
The rural headline inflation In Januaryu stood at 2.73% and the urban print was 2.77%. The revised Consumer Food Price Index inflation moderated to 2.13% with rural at 1.96% and urban at 2.44%. Housing inflation was recorded at 2.05% (combined), with rural housing showing 2.39% and urban 1.92%.
The CPI showed a gradual upward movement over the past year, rising from 101.67 in January 2025 to 104.46 in January 2026.
The RBI during the February Monetary Policy Committee (MPC) meeting revised its inflation forecast upward to 2.1% for 2025–2026 from 2% earlier. It had projected inflation at 3.2% for Q4 FY26, and 4% for Q1 FY27 and 4.2% for Q2. The central bank kept repo rates unchanged at 5.25% in the latest review, and maintained policy stance at ‘neutral’.
Most economists do not expect the new inflation series to materially influence RBI’s policy in the near term. “”An extended rate pause looks likely, underpinned by a cyclical upturn in both growth and inflation and improving confidence following the conclusion of the US–India trade negotiations,” said Madhavi Arora, Chief Economist at Emkay Global. According to Sakshi Gupta, principal economist at HDFC Bank, although the new CPI series suggests that food inflation is higher, core inflation is more moderate than anticipated for January. “Indicators like housing inflation also confirm that inflationary pressures in the segment do not show any spikes,” she said.
Sujan Hajra, echief economist and executive director at Anand Rathi Group, said the latest inflation print indicates a firming in price momentum compared with the unusually soft readings seen toward the end of 2025, when food prices had kept headline inflation subdued. “Even with the uptick, inflation remains comfortably below the RBI’s 4% target, suggesting overall price pressures are still contained. Looking ahead, inflation is expected to edge higher gradually as base effects fade and food inflation picks up gradually,” Hajra added.
Paras Jasrai, associate director at India Ratings and Reserach wrote: “The pick-up in inflation in January 2026 was on account of food prices, which turned to an inflationary trajectory. “Inflation is expected to pick up in the coming quarters, however, it is expected to be within the tolerance band of the RBI’s MPC. For February 2026, we expect the retail inflation to average 3.2%.
The RBI targets inflation in a 2% to 6% range.