What Happened
- India's retail inflation stood at 2.75% in January 2026, the first reading under the newly launched CPI series with base year 2024=100, replacing the earlier 2012=100 series
- The new CPI series is based on the Household Consumption Expenditure Survey (HCES) 2023-24, reflecting updated consumption patterns
- Food and beverages weight reduced significantly from 45.9% to 36.8%, while housing weight rose from 10.07% to 17.66%
- Coverage expanded to 358 items (from 299), 2,860 markets (from 2,300), and includes 12 online marketplaces for the first time
- The 2.75% inflation reading is well within the RBI's 2-6% target band, with rural inflation at 2.73% and urban at 2.77%
Static Topic Bridges
Consumer Price Index (CPI) — Concept and Methodology
The Consumer Price Index measures the average change over time in prices paid by consumers for a representative basket of goods and services. In India, the CPI (Combined — rural and urban) has been the headline inflation measure used by the RBI for monetary policy since 2014, when the Urjit Patel Committee recommended shifting from WPI to CPI as the nominal anchor. The Central Statistics Office (now National Statistical Office) compiles the CPI monthly. Base year revisions are carried out periodically to align the consumption basket with current spending patterns.
- CPI was adopted as the monetary policy anchor following the Urjit Patel Committee (2014) recommendation
- The RBI's flexible inflation targeting framework (introduced via amendment to the RBI Act in 2016) targets CPI inflation at 4% with a band of +/- 2%
- Previous base years: 2001 (until 2015), 2012 (until January 2026), 2024 (current)
- The Monetary Policy Committee (MPC), established under Section 45ZB of the RBI Act, uses CPI data for rate-setting decisions
Connection to this news: The shift to 2024=100 base year is significant because it fundamentally alters the inflation basket weights the MPC uses for its rate decisions, potentially affecting the trajectory of interest rate cuts.
Household Consumption Expenditure Survey (HCES)
The HCES is a nationally representative survey conducted by the National Statistical Office (NSO) that captures household spending patterns across goods and services. It forms the basis for CPI weight calculations and poverty estimation. The HCES 2023-24 is the first successfully completed round after the controversial 2017-18 survey whose results were withheld by the government. The survey captures how India's consumption basket has evolved — with reduced food share and increased spending on housing, transport, health, and communication.
- HCES 2023-24 surveyed approximately 2.6 lakh households across India
- Previous completed HCES: 2011-12 (68th round); the 2017-18 round was scrapped due to data quality concerns
- Key finding: Food's share of total consumption has fallen (Engel's Law), reflecting rising incomes
- The survey also informs poverty line estimation and policy targeting
Connection to this news: The new CPI series derives its consumption basket weights directly from the HCES 2023-24, which is why food weight dropped sharply from 45.9% to 36.8% — Indians are spending proportionally less on food and more on housing, transport, and services.
RBI's Flexible Inflation Targeting (FIT) Framework
India adopted a Flexible Inflation Targeting framework in 2016 through an amendment to the RBI Act, 1934. The framework mandates the RBI to maintain CPI inflation at 4% with a tolerance band of +/- 2% (i.e., 2% to 6%). If inflation exceeds 6% or falls below 2% for three consecutive quarters, the RBI must write to the government explaining the failure and remedial measures. The six-member Monetary Policy Committee (MPC), with three external members, decides the policy repo rate.
- Legal basis: Section 45ZB of the RBI Act, 1934 (amended 2016)
- Inflation target: 4% CPI (+/- 2%) — reviewed every five years; current target valid until March 2026
- MPC composition: 3 RBI members (Governor as Chair, Deputy Governor, one RBI official) + 3 external members appointed by the government
- Failure clause: If inflation stays outside 2-6% band for three consecutive quarters, RBI must report to the government
Connection to this news: At 2.75%, January 2026 inflation is well within the 2-6% target band and below the 4% midpoint, which gives the MPC additional room for accommodative monetary policy (rate cuts) to support economic growth.
CPI Base Year Revision — Key Weight Changes
The transition from CPI (2012=100) to CPI (2024=100) reflects a structural shift in India's consumption economy. The classification structure has been overhauled from 6 groups and 23 sub-groups to 12 divisions, 43 groups, 92 classes, and 162 sub-classes, aligning with international COICOP (Classification of Individual Consumption According to Purpose) standards.
- Food and beverages: 45.9% to 36.8% (largest decline)
- Housing (including utilities): 10.07% to 17.66% (largest increase)
- Transport and communication: weight increased significantly
- Items tracked: 299 to 358 (308 goods + 50 services)
- Markets: 2,300 to 2,860 (1,465 rural + 1,395 urban)
- Town coverage: 310 to 434
- Online marketplaces included for the first time: 12 platforms
Connection to this news: The reduced food weight means future CPI readings will be less volatile (food prices are highly seasonal), potentially smoothing the inflation trajectory and giving the MPC more predictable data for policy decisions.
Key Facts & Data
- January 2026 CPI inflation: 2.75% (rural 2.73%, urban 2.77%)
- New base year: 2024=100 (replacing 2012=100)
- Food weight: reduced from 45.9% to 36.8%
- Housing weight: increased from 10.07% to 17.66%
- Items covered: 358 (up from 299); includes 308 goods and 50 services
- Markets covered: 2,860 (up from 2,300)
- Online marketplaces tracked: 12 (new addition)
- Classification: 12 divisions, 43 groups, 92 classes, 162 sub-classes (COICOP-aligned)
- RBI inflation target: 4% +/- 2% (valid until March 2026)