BofA Lowers FY27 CPI Forecast as New Series Shows No Major Trend Shift

India’s new Consumer Price Index series, with 2024 as the base year, does not materially alter the country’s inflation narrative, as the revised index is broadly similar to the 2012-based series and does not signal any dramatic shift in price trends, even as it significantly improves coverage, transparency and state-level granularity, BofA Securities said in a report today.

BofA reconstructed a back series by mapping common items across the two baskets, covering 96.8% of the earlier index. The exercise suggests that average inflation under the new methodology is marginally lower for both headline and core measures, indicating no fresh or hidden inflationary pressures.

The Report said, over the past year, core inflation under the revised weights averaged 3.8%, compared with 4.2% under the 2012 base. On a five-year average basis, headline inflation under the new construct is estimated at 4.8%, about 20 basis points lower than the earlier 5% average, largely due to softer food readings.

Volatility patterns have also shifted. Headline inflation appears slightly less volatile under the new framework, while core inflation shows somewhat higher volatility. This, BofA argues, reflects the greater stickiness of durable goods and services prices, particularly after the inclusion of rural housing rents and a higher weight for services.

The structural changes are meaningful. Food and beverages now carry a weight of 36.75%, down from 45.86% in the 2012 series, while core components account for 57.88% of the basket, up from 47.3%. The adoption of the COICOP 2018 classification expands the basket to 358 items and incorporates e-commerce pricing and rural housing, enhancing representativeness without materially distorting trends.

Importantly, BofA finds no clear structural break when comparing the back series with wholesale price inflation. Correlation with wholesale prices has improved under the reconstructed index, reinforcing the view that the new series aligns better with broader price indicators.

Against this backdrop, BofA has marginally lowered its headline inflation forecast for 2026–27 to 4.4% year on year, from an earlier 4.8%. This would mark a meaningful rise from the estimated 2.1% in 2025–26, which is set to be the lowest annual average on record, but remains consistent with inflation returning towards the 4% target over the medium term.

Food inflation is expected to normalise to around 5.0% in 2026–27, up from 2.2% in 2025–26, driven by a rebound in perishables and some recovery in non-perishables. Core inflation, by contrast, is projected to edge up only modestly to 4.1% from 4.0%, as the lower weight for gold and higher weight for housing and services temper underlying pressures, BofA said.

The report said the new CPI series refines India’s inflation measurement architecture and improves data quality, yet it confirms rather than overturns the prevailing disinflation story.