India’s Rebased CPI Signals Softer Core, Says I-Sec PD

India’s newly-rebased consumer price index suggests underlying inflation is materially softer than previously assumed, prompting bond house ICICI Securities Primary Dealership to lower its 2026-27 headline inflation forecast and reinforcing expectations that the Reserve Bank of India can afford a prolonged rate pause.

January inflation under the new 2024-base CPI printed at 2.7% year on year, broadly in line with market expectations and consistent with back-casted averages for 2025. The headline offered little surprise. The composition did.

Core inflation under the new series came in at 3.4% year on year, sharply below the 4.6% reading in December under the old 2012-base series. A narrower “super core” measure, excluding restaurants, precious metals, auto fuels and pan-tobacco, stood at 2.0% in January, compared with 2.3% in December under the old series.

Adjusting for one-off effects such as the impact of goods and services tax cuts, the bond house estimates underlying inflation may now lie in the 2.5–3% range, rather than the roughly 3.5% it had earlier assumed under the old series. That reassessment has prompted a downward revision to its 2026-27 headline inflation outlook to around 4%, from an earlier 4.5–5% projection.

The moderation in core appears broad-based, said ICICI Securities Primary Dealership, in a report. While lower weights for precious metals were expected to drag on the new series, the softness is not confined to that segment. Housing inflation, for instance, printed at 2.0% year on year in January under the new basket, compared with 2.9% in December under the old series, challenging earlier assumptions that rental inflation had been understated.

Food dynamics tell a different story. Food and beverages inflation printed at 2.1% in January, versus -1.8% in December under the old series. Even so, the bond house is not materially altering its expectation that food inflation will average 4.5–5% next fiscal year, having already anticipated a normalisation from unusually low levels.

With non-food inflation carrying a larger share of the basket and now assessed to be 50–100 basis points lower than previously thought, headline inflation in 2026-27 is expected to average 30–50 basis points below prior estimates.

Even if underlying inflation picks up from 2.5–3%, a cyclical pick-up as output gaps close would likely keep it comfortably below 4%. That strengthens the case for the Monetary Policy Committee to remain on pause, particularly as growth remains resilient.

I-Sec PD does not treat further easing as its baseline, arguing that policy rates are already reasonably low by historical standards. Still, the new CPI series gives the central bank greater confidence that maintaining ample liquidity and steady rates will not jeopardise price stability.

For bond markets, the message is straightforward: the inflation floor appears lower than previously assumed.