CPI Inflation Expected to Stay Below 4% Despite New Series: Bank of Baroda
The Consumer Price Index (CPI) in India is projected to remain below the 4 per cent target, even under the newly revised series, thanks to a careful recalibration of weights, according to a report by Bank of Baroda. The bank highlighted that the updated CPI methodology better reflects India’s evolving consumption patterns, ensuring that headline inflation—a key variable for monetary policy—is contemporary and aligned with international standards.
Key Changes in the New CPI Series
The report emphasized that the new CPI series is pragmatic, capturing the latest consumption trends while correcting earlier biases in the 2011-12 series. Weights for gold and other ornaments have been reduced, limiting the impact of volatile precious metal prices on headline inflation. Similarly, the weight assigned to Tomato, Onion, and Potato (TOP) vegetables has been lowered to better reflect consumption realities. Bank of Baroda expects the recalibrated CPI to remain within the target range of 4 ± 2 per cent. For January 2026, headline CPI stood at 2.8 per cent, closely matching the bank’s projection of 2.9 per cent. Most subcomponents showed stability, though some volatility persisted in personal care, social protection, and miscellaneous goods.
Food Prices and Core Inflation Outlook
High-frequency food prices are largely contained, except for some edible oils, such as groundnut, sunflower, and soya oils, and pulses like Tur and Urad. The bank’s in-house BoB ECI indicator is running at -0.4 per cent year-on-year for the first 11 days of February 2026, signaling muted inflation pressures. However, the report cautioned that core inflation remains sensitive, particularly due to precious metals, which could exert upward pressure in the near term.
Monetary Policy Implications
Overall, the report concluded that the structured and holistic CPI series will provide a robust basis for monetary policy decisions. With inflation expected to stay within the 4 ± 2 per cent target, the central bank has room to maintain a balanced approach, monitoring price trends without undue concern over short-term volatility.
(This article has been syndicated from ANI)
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