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New CPI index may give RBI reason to keep interest rates on hold

February 12, 2026 7 min read Economics GS3 (Indian Economy Monetary Policy)
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What Happened

  • India is set to release inflation figures using the new Consumer Price Index (CPI) series with base year 2024=100, replacing the existing 2012=100 series, on 12 February 2026
  • The revised index significantly restructures consumption weights: food and beverages weight reduced from 45.86% to 36.75%, while housing nearly doubles from 10.07% to 17.66%
  • Analysts estimate that the new index could push the January inflation reading to approximately 2.77%, which, while still well below the RBI's 4% target, represents an upward revision compared to the old series
  • The RBI held the repo rate at 5.25% in its February 2026 meeting (after a 25 bps cut in December), and the new CPI figures could reinforce the decision to maintain a prolonged pause on further rate cuts
  • The revised series adopts the international COICOP 2018 classification framework, includes prices from e-commerce platforms, and tracks modern consumption items like OTT subscriptions, telecom plans, and airfares

Static Topic Bridges

Consumer Price Index -- Methodology, Base Year Revisions, and Compilation

The Consumer Price Index (CPI) measures changes in the price level of a weighted basket of consumer goods and services purchased by households. In India, CPI is compiled by the National Statistical Office (NSO) under the Ministry of Statistics and Programme Implementation (MoSPI). The index is the primary metric used for inflation targeting by the RBI. Base year revisions are essential to reflect evolving consumption patterns, and the weights for the consumption basket are derived from the Household Consumption Expenditure Survey (HCES).

  • CPI compiled by: National Statistical Office (NSO), MoSPI; released monthly
  • Previous CPI base years: 2001 (CPI-IW), 2010=100 (first all-India CPI using CES 2004-05 weights), 2012=100 (using CES 2011-12 MMRP weights, released from January 2015)
  • New base year: 2024=100, weights derived from HCES 2023-24
  • HCES 2023-24: Conducted by MoSPI during August 2023 to July 2024; uses Modified Mixed Reference Period (MMRP) -- 365 days for clothing, education, durables; 7 days for perishable food; 30 days for other items
  • New series items: 358 weighted items mapped to 12 divisions, 43 groups, 62 classes, and 192 sub-classes under COICOP 2018 classification
  • Major weight changes: Food and beverages reduced from 45.86% to 36.75%; Housing increased from 10.07% to 17.66%; Transport and communication increased from 8.59% to 12.41%; Recreation and culture more than doubled to 4.86%
  • New items tracked: OTT subscriptions, telecom plans, digital services, airfares, e-commerce prices; replacing obsolete items like video cassette recorders, radios, horse-cart fares

Connection to this news: The release of the 2024-base CPI on 12 February 2026 marks the transition to a more representative inflation measure. The significant reduction in food weight and increase in housing, transport, and digital services reflects India's structural shift toward a services-oriented, urbanizing economy. This changes the inflation signal: food price spikes will have less impact, while housing and services costs will matter more.

Inflation Targeting Framework -- RBI's Monetary Policy Architecture

India adopted a formal inflation targeting framework in 2016, making the RBI legally responsible for maintaining price stability. Under Section 45ZA of the amended RBI Act, 1934, the Central Government, in consultation with the RBI, sets the inflation target in terms of CPI every five years. The Monetary Policy Committee (MPC), constituted under Section 45ZB, determines the policy repo rate to achieve this target.

  • Legal basis: RBI Act, 1934, amended by Finance Act 2016; Sections 45ZA (inflation target) and 45ZB (MPC constitution)
  • Committee recommendation: Urjit Patel Committee (2014) recommended flexible inflation targeting; adopted via legislative amendment
  • Inflation target: 4% CPI inflation, with a tolerance band of +/-2% (i.e., 2% to 6%)
  • Target period: First notified 5 August 2016 to 31 March 2021; retained for 1 April 2021 to 31 March 2026
  • MPC composition: 6 members -- RBI Governor (Chairperson, casting vote), Deputy Governor (monetary policy), one RBI officer, and 3 external members appointed by the Central Government (4-year term)
  • MPC quorum: 4 members; each member has one vote; in case of tie, Governor has casting vote
  • MPC must meet at least 4 times a year; if inflation exceeds 6% or falls below 2% for 3 consecutive quarters, RBI must submit a report to the Central Government explaining reasons and remedial actions
  • Current repo rate: 5.25% (held in February 2026 after a 25 bps cut in December 2025)
  • RBI's inflation projection for FY 2025-26: 2.1%; GDP growth forecast raised to 7.4%

Connection to this news: The CPI base year revision directly impacts the inflation targeting framework because the 4% target is defined in terms of CPI. If the new series shows structurally higher inflation (even by 20-30 bps), it narrows the headroom for rate cuts despite headline inflation being well below target. This is precisely why analysts expect the RBI to remain on a prolonged pause.

Household Consumption Expenditure Survey (HCES) -- Foundation of Economic Statistics

The HCES (formerly called Consumer Expenditure Survey or CES) is a large-scale household survey conducted by the NSO to estimate average monthly per capita expenditure (MPCE) across rural and urban India. Its data serves as the foundation for multiple macroeconomic indicators -- CPI weights, poverty estimation, GDP rebasing, and sectoral analysis.

  • Conducted by: NSO under MoSPI
  • Recent surveys: HCES 2022-23 and HCES 2023-24 (two back-to-back surveys conducted to facilitate base year revision)
  • Uses MMRP (Modified Mixed Reference Period): Different recall periods for different items to improve accuracy
  • The previous CES (2011-12, NSS 68th Round) formed the basis for CPI 2012=100 weights
  • The CES 2017-18 (NSS 75th Round) results were not released due to data quality concerns; this created a significant gap in consumption data
  • HCES 2023-24 findings: Average MPCE rose significantly; food share of total expenditure declined (reflecting Engel's Law -- as income rises, the proportion spent on food decreases)
  • The survey data is also used for poverty line estimation (Tendulkar methodology, subsequently Rangarajan Committee recommendations)

Connection to this news: The CPI 2024=100 weights are directly derived from HCES 2023-24. The sharp reduction in food weight (from 45.86% to 36.75%) mirrors the HCES finding that Indian households now spend a smaller share of their income on food -- a structural shift that the old 2012-base index failed to capture for over a decade.

Impact of Base Year Revision on Monetary Policy Transmission

When a CPI base year is revised, the inflation signal changes because of altered item weights, even if underlying prices remain the same. This has direct implications for monetary policy -- the same price environment can yield different inflation readings under old and new series. Central banks globally face this challenge during base year transitions.

  • SBI Research estimate: Applying new weights to unchanged price indices would raise headline CPI inflation by 20-30 bps on average
  • During periods of elevated food inflation: Headline CPI could be 20-30 bps lower under the new series (because food weight is reduced)
  • Core inflation (excluding food and fuel) weight rises to nearly 58% from 47.3%, giving services and housing prices greater influence on headline numbers
  • The transition period may cause temporary confusion in interpreting inflation trends, as historical comparisons require backcasting
  • RBI's inflation projection of 2.1% for FY 2025-26 is based on the old series; recalibration under the new series is pending
  • Bond markets may react: Higher inflation readings under the new series could push up bond yields, tightening financial conditions even without a rate hike

Connection to this news: The new CPI series could show inflation closer to the 4% target than the old series suggests, reducing the case for further rate cuts. This "statistical tightening" -- where measured inflation rises without actual price acceleration -- is a unique policy challenge the RBI faces as it transitions to the new index.

Key Facts & Data

  • New CPI base year: 2024=100 (replacing 2012=100); released 12 February 2026
  • Weights derived from: HCES 2023-24
  • Food and beverages weight: 45.86% (old) to 36.75% (new)
  • Housing weight: 10.07% (old) to 17.66% (new)
  • Transport and communication weight: 8.59% (old) to 12.41% (new)
  • Core inflation weight: 47.3% (old) to nearly 58% (new)
  • New series items: 358 weighted items under COICOP 2018 (12 divisions, 43 groups, 62 classes, 192 sub-classes)
  • Expected impact: Headline CPI could be 20-30 bps higher on average under new weights
  • Estimated January 2026 CPI under new series: approximately 2.77%
  • Current repo rate: 5.25% (held in February 2026)
  • RBI inflation target: 4% CPI (+/- 2% tolerance band), valid until 31 March 2026
  • MPC composition: 6 members (3 RBI + 3 external), constituted under Section 45ZB of RBI Act
  • RBI FY 2025-26 projections: GDP growth 7.4%, inflation 2.1% (old series basis)