India Plans CPI Overhaul, Eyes New Inflation Targeting Framework for 2026
India is preparing a major revamp of its inflation measurement and policy framework as benign price trends continue, driven by easing food costs and GST reductions. Retail inflation based on the Consumer Price Index (CPI) has stayed within the Reserve Bank of India’s (RBI) comfort band and even slipped below 2 per cent after June 2025, while food inflation — which carries nearly 48 per cent weight in the CPI — turned negative. The government has begun work on a new CPI series with 2024 as the base year, involving a comprehensive revision of coverage, item basket, weights and methodology, with the updated index expected to be released in February.
The trend of low price pressures has also reflected in the Wholesale Price Index (WPI), which moved into deflation by mid-2025 and has remained subdued due to softer food and fuel prices. With inflation persistently below the lower bound of the RBI’s 2–4 per cent target, the debate over the inflation-targeting mandate has intensified. The central bank has issued a consultation paper on the regime, and a new framework is expected to take effect from April 1, 2025, coinciding with the end of the current five-year cycle. Meanwhile, the RBI has already cut policy rates by a cumulative 125 basis points since February 2025, supported by exceptionally low inflation and stable growth.
Economists say the new CPI index will be crucial for shaping 2026 forecasts, with expectations that inflation may edge higher from the unusually low levels of 2025 due to base effects but broadly remain under control. Estimates suggest headline inflation could hover in the 4–4.5 per cent range next year, potentially limiting further rate cuts, even as core inflation moderates with the full pass-through of GST reductions. Others note that differences in the composition of CPI and WPI — especially the treatment of fuels, crude oil and manufactured goods — explain the divergence in inflation readings, with WPI slipping deeper into deflation while services and non-food components keep CPI marginally positive.
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