Retail inflation in January at 2.75% in first reading under new CPI series

Retail inflation stood at 2.75% in January under the newly launched All India Consumer Price Index (CPI) series, with 2024 as the base year, according to data released by the National Statistics Office (NSO) under the Ministry of Statistics and Programme Implementation on Thursday. 

CPI basket expanded to reflect changing consumption trends

The revised CPI series expands the consumption basket to better reflect current spending patterns. The number of goods covered has increased from 259 to 308, while services have risen from 40 to 50. The updated index incorporates several new items, including rural housing, online media or streaming services, value-added dairy products, barley and its products, pen drives and external hard disks, attendants and babysitters, and exercise equipment. 

The January food inflation rate under the new series was 2.13%. Food and beverages, which carry a weight of 37% in the index, recorded inflation of 2.11%. However, certain items saw sharp price increases, with tomato inflation surging to 64.8%, while coconut and coconut oil continued to witness high double-digit inflation. 

New CPI series includes OTT, Ffuel, travel costs

Key enhancements in the new series include the addition of rural house rent and fuels such as CNG and PNG. To improve coverage, digital and administrative data sources have been integrated, covering items such as telephone charges, rail and air fares, postal charges, fuel, and OTT subscriptions. Obsolete products such as VCRs, DVD players, radios, tape recorders, second-hand clothing, and coir or rope have been removed from the basket. 

Under the old CPI series with base year 2012, retail inflation had stood at 4.26% in January 2025 and 1.33% in December. 

Madan Sabnavis, Chief Economist, Bank of Baroda, said, “Inflation for January has come in at 2.8% which is similar to what we had projected at 2.9%. First, a backdrop of the new index. There has been considerable change in the composition of the index with the weight of food items now being brought down to 36.8%. This makes a difference for the index and inflation as these prices tend to be more volatile and hence have brought large shifts in the inflation numbers in the past. This noise element gets reduced in the new index. Further, there is a new item of housing represented by rents which are calculated and comes in a category of housing, water, electricity, fuel."

He said, "At the state level, the trend witnessed in the earlier series continues with Telangana, Tamil Nadu, Kerala, Karnataka, and Rajasthan witnessing highest inflation in January. The north-eastern states have relatively low inflation of less than 2% in most cases. Given the composition of the index and the dilution of the base effect for food items, we may expect inflation to climb upwards in the coming months. This would mean a long pause from the point of view of the RBI on rates. There may not be too much of alteration in the inflation forecasts by the RBI for next year.” 

How do the latest inflation numbers stack up

• Food inflation stands at 2.1%, moving out of negative territory and expected to stay positive.

• Deflation persists in garlic, onions, potatoes, and pulses such as tur.

• Coconut and coconut oil are the only items recording high inflation.

• As the favourable base effect fades, food inflation may trend higher.

• Pan and tobacco inflation is 2.9%, among the highest across categories, reflecting the impact of GST (excluding personal care, which includes gold and silver).

• Clothing and footwear registered 3% inflation, largely driven by clothing prices.

• Furnishings and household goods, along with housing, water, gas and electricity, recorded moderate inflation of around 1.5%.

• These segments are relatively sticky, with periodic revisions.

• Health inflation is at 2.2%, currently low but subject to periodic fluctuations during the year and requires monitoring.

• Transport and communication show very low inflation at 0.09% and 0.2%, respectively.

• Frequent price adjustments in these segments could influence the headline index.

• Education inflation stands at 3.4%, with secondary and higher education contributing the most.

• Restaurants and hotels recorded 2.9% inflation, driven mainly by restaurant prices.

• Personal care has the highest inflation among major groups, led by rising gold and silver prices.

Upasna Bhardwaj, Chief Economist at Kotak Mahindra Bank, said inflation was broadly in line with expectations and core inflation appeared lower than anticipated. While the inflation trajectory remains benign, she expects the Reserve Bank of India’s rate-cutting cycle to have ended, with rates likely to remain on pause through calendar year 2026. 

Madhavi Arora, Chief Economist at Emkay Global Financial Services, also said an extended rate pause appears likely, supported by a cyclical recovery in growth and inflation, as well as improving confidence following the conclusion of US–India trade negotiations.