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India's Retail Inflation Drops to 2.75% in January 2026

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  Published in Politics and Government on Thursday, February 12th 2026 at 8:18 GMT by newsbytesapp.com
      Locale: N/A, INDIA

New Delhi - February 12th, 2026 - India's retail inflation, as measured by the Consumer Price Index (CPI), registered a significant slowdown in January 2026, falling to 2.75%. This marks a considerable drop from the 3.45% recorded in December 2025, offering a potential respite to both consumers and policymakers. The release of this data on Thursday comes amidst a shift in the CPI calculation methodology, incorporating a new base year of 2019-20, and is heavily influenced by recent declines in food prices.

This 2.75% figure, while encouraging, requires nuanced interpretation. The change in base year from the previous system is a crucial factor. Moving to the 2019-20 base year recalibrates the weightings assigned to different goods and services within the CPI basket, reflecting more accurately current consumer spending patterns. While government officials maintain this provides a more realistic inflation picture, some economists suggest the change itself contributes to the lower reported figures, effectively lowering the bar for inflation measurement. Determining the precise impact of this methodological shift remains a topic of ongoing debate.

Delving deeper into the CPI components reveals a complex picture. While overall inflation is down, core inflation - excluding the often-volatile categories of food and fuel - remains stubbornly high. This suggests that underlying inflationary pressures are still present within the Indian economy. This persistent core inflation is driven by factors such as rising service costs, increased demand for discretionary goods, and lingering supply chain disruptions stemming from global events. A high core inflation rate limits the extent to which the Reserve Bank of India (RBI) can aggressively loosen monetary policy, even with the lower headline number.

The primary driver of the overall decline in January was, undoubtedly, the fall in food prices. A particularly significant decrease was observed in vegetable prices, which heavily influence the CPI basket due to their substantial weighting. This decline is attributed to a combination of factors including a favorable harvest season for several key vegetables, effective supply chain management by government initiatives, and a decrease in demand following the festive season. However, it's important to note that agricultural commodity prices are notoriously volatile, and a future disruption - whether due to weather events, pest infestations, or global market fluctuations - could easily reverse this trend.

RBI Policy Implications and Future Outlook

The latest CPI figures will be central to the discussions at the upcoming monetary policy committee (MPC) meeting of the RBI. The lower-than-expected inflation reading provides the central bank with increased flexibility to consider easing monetary policy. For months, the RBI has maintained a cautious stance, holding key interest rates steady despite calls for reduction to stimulate economic growth. The current cooling of inflation could now pave the way for potential rate cuts in the coming months, potentially boosting investment and consumption.

However, the RBI will tread cautiously. The persistent elevated core inflation is a significant concern. Further, global economic headwinds, including geopolitical instability and fluctuating crude oil prices, present downside risks to India's inflation outlook. A sudden surge in global oil prices, for instance, would quickly negate the positive impact of lower food prices and reignite inflationary pressures. The RBI will likely adopt a 'wait-and-see' approach, closely monitoring both domestic and international economic developments before making any significant policy changes.

Several economists predict that while a rate cut is possible in the next policy review, it will likely be a modest one - perhaps a 25 basis point reduction. The RBI is likely to prioritize maintaining price stability and anchoring inflation expectations, even if it means sacrificing some short-term economic growth.

The long-term inflation trajectory will depend on a complex interplay of factors, including government fiscal policy, global commodity prices, and the pace of economic recovery. Continued investment in infrastructure, reforms to improve agricultural productivity, and effective supply chain management will be crucial to sustaining low inflation in the years ahead. Monitoring the impact of the new CPI base year over several months will also be vital to accurately assess the true underlying trend in Indian inflation.