New series confirms CPI below 3%
The new CPI series was released yesterday with January-26 CPI at 2.75% compared to 1.2% in December-25 (estimated
using the linking factor of 0.5267). On a sequential basis, headline CPI increased by 0.3%. Broadly, the data does not
present any major negative surprise and confirms the moderating inflation trend witnessed over the last 12 months. 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). The new CPI series doesn’t change our view of no further rate cuts
from the RBI in FY27 and expect continued focus on transmission and liquidity. We estimate inflation
at 2.1% for FY26 and 4.3% for FY27. The new GDP series (to be released later in February) is likely to
provide colour on how the growth dynamics are playing out and could have implications for scope
and direction of monetary action.
• The back data for the new CPI series is only available at the headline level and therefore limits us from
doing detailed item wise analysis/comparison.
• Food inflation stood at 2.1% in January 2026, coming in higher than we had estimated based on the
old series. For one, on a sequential basis, the seasonal decline in food inflation of 0.04% (usually seen
in winter months) was lower than the usual seasonal declines (compared to a seasonal average of (-)
1.4% based on the 2011-12 series). So, there could be a low base effect pushing up January 2026 food
inflation numbers. Second, the tepid m-o-m decline in January (compared to seasonal averages) could
be explained by the decline in food prices witnessed throughout 2025, limiting further sharp slowdown.
The decline in vegetables and pulses of -5.3% y-o-y was also much lower than what was being
witnessed in the old series up to December. Third, in the new series while overall weight of food has
come down, within the basket weights of items like meat and fish and fruits have in fact increased
compared to old series.
These items saw inflation high inflation with meat and fish above 7% and fruits
and nuts inflation at 7.9% in January 2026.
• Core inflation came lower at 3.4% in January-26 compared a 4%+ print we were tracking so far (4.7%
in December-25 as per old series). This could in part be due to the lower weight of gold in the new
series – to recall high gold prices have led to a substantial part of the increase in core inflation so far in
FY26 as per old series. In the new basket, gold along with diamond and platinum jewellery has a share
of 0.62% compared to gold’s share of 1.08% in the old series. It is also encouraging to see that housing
inflation – which is now being computed differently in the new series (removing employer provided
rent) and calculated for rural areas as well – remained broadly moderate at 2.1% in January. The overall
core inflation prints signals that underlying inflationary pressures remain moderate.
• The new series has the base year changed to 2023-24 from the earlier 2011-12, along with a change in
weights of items in the CPI basket. In the new CPI 2024 series, the item basket will comprise of 354
items. Of which the share of food and beverages came down to 36.75% compared 42.61% earlier.
Important to note, the new series has introduced a new segment “restaurants and accommodation
services”, components of which were earlier clubbed under food (cooked meals and snacks) and
recreation and services (lodging charges) segments in the old series The share of core (defined as
Headline excluding food & beverage, fuel & light and pan and tobacco) is estimated at 54.9% (including
restaurant and accommodation and services) in new series versus 48.2% in the old series.
Analytical Contacts
Sakshi Gupta
Principal Economist
Sakshi.gupta3@hdfcbank.com
Deepthi Mathew
Senior Economist
Deepthi.mathew@hdfcbank.
