By Anup Roy and Subhadip Sircar
India will publish inflation figures based on a new index on Thursday, which analysts say may show elevated price pressures in the economy, giving the central bank reason to keep interest rates on hold.
The new consumer price index from the Ministry of Statistics and Programme Implementation, due Thursday at 4 pm, will reflect changes in spending patterns since the last overhaul done more than a decade ago. The data release will include figures for 2025 based on the index weights, making comparisons easier.
The weighting of volatile items such as food has been reduced to about 36.8 per cent from nearly half previously, and new spending categories like rentals for rural housing and online shopping, have been added. The base year has also been changed to 2024 from 2012.
The changes could lift the January inflation reading to about 2.77 per cent, according to the median estimate of 32 economists in a Bloomberg survey. Inflation was 1.33 per cent in December based on the previous CPI series.
Although inflation remains well below the Reserve Bank of India’s 4 per cent target, the new figures could prompt the central bank to hold off on any further rate cuts and push up bond yields further. Last week, Governor Sanjay Malhotra kept the benchmark interest rate unchanged and indicated a prolonged pause going forward.
The overhaul comes amid a scrutiny of the central bank’s inflation forecasting model after it consistently overestimated price pressures last year, potentially contributing to a hawkish policy stance. Officials have also been debating whether the central bank should target an inflation measure that excludes food, since the high weighting causes more volatility in the headline numbers.
The new series will help the RBI to “make its monetary policy actions much more effective and transmission quicker,” said Amol Agrawal, who teaches economics at the National Institute of Securities Markets. “It minimizes, if not eliminates policy errors that the central bank may have suffered occasionally from under the older series.”
The revamp is closely watched by financial market participants as it could alter expectations for interest rates at a time when foreign flows are highly sensitive to policy signals. A higher inflation trajectory may keep borrowing costs elevated, influencing bond yields, equity valuations and both portfolio and longer-term foreign direct investment decisions.
Saurabh Garg, secretary in the Ministry of Statistics and Programme Implementation, said Wednesday the revised CPI will better reflect India’s economic reality following a rapid expansion in consumer spending over the years. Rising incomes means Indians are spending less on food and more on services and housing.
The weight of core inflation, which excludes food and fuel, will rise to nearly 58 per cent in the new CPI series from 47.3 per cent previously, according to calculations by DBS Group Holdings Ltd. Core inflation is typically more responsive to monetary policy action.
The government will also publish gross domestic product data on Feb. 27 based on the new consumer spending patterns, which analysts say may show a sharp revision higher in the size of the economy. That could put India on track to overtake Japan as the world’s fourth-largest economy.
Horse-Cart Fares
The overhaul in the CPI means prices for antiquated items such as video cassette recorders, radios and horse-cart fares will make way for airfares, online subscriptions and e-commerce sales. The index will now include electricity prices, housing costs in rural areas and standardized norms for gold and silver jewelery.
Free food items distributed under government welfare programs will be excluded. The government also plans to publish more detailed CPI data, potentially down to the item level, incorporating inputs from states and sectors.
The new CPI series arrives as the bond market grapples with record debt supply from federal and state governments. Yields on the benchmark 10-year bond surged to their highest level in over a year last week after the central bank held rates and refrained from announcing any further bond purchase plans.
“The market is expecting a slight upward near-term bias in the new CPI of around 30–50 basis points,” said Suyash Choudhary, chief investment officer for fixed income at Bandhan AMC Ltd. “The RBI is generally expected to be on long hold with focus on proactive liquidity management.”
