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Informist, Monday, Feb. 23, 2026

 

--RBI Malhotra: New CPI series to reduce volatility in headline inflation 
--RBI Malhotra: Govt still considering CPI inflation target range

 

NEW DELHI – The new series for CPI inflation based on 2024 prices as the base year is a "welcome" move and will "help better reflect consumption expenditure of Indian households", while also, "to some extent, reduce volatility", Reserve Bank of India Governor Sanjay Malhotra said. In both ways, it will help in better CPI estimation, Malhotra said at a press conference Monday following the post-Budget meeting of RBI Central Board of Directors with Finance Minister Nirmala Sitharaman.

 

Data released on Feb. 12 showed retail inflation was 2.75% in January, according to the new CPI series, which uses 2024 as the base year. The Ministry of Statistics and Programme Implementation released the new CPI series, which widens coverage and tracks prices of 358 items, sharply up from 299 items in the old series. 

 

Headline inflation in January, the first month based on new series, was above the lower end of the RBI's tolerance band of 2-6%, a first since June 2025. Headline inflation averaged 2.2% in 2025, according to both the new and old series. On average, there was no difference in headline inflation over the last 12 years between the two CPI series, according to Informist's calculations of the back series data provided by the government.

 

The central bank projects inflation to average 2.1% in 2025-26 (Apr-Mar), 4% in Apr-Jun, and 4.2% in Jul-Sept. It has not given projections for the final two quarters of FY27 and also for the full fiscal year starting Apr. 1. "If the whole methodology is changing, then obviously the target will undergo a change," Malhotra said while commenting on the expected changes to CPI projection from the new series. "Next estimate that we give out in the April policy will certainly take into account all the changes that are being brought in," he said. 

 

In the new series, the statistics ministry has cut the weight of food and beverages to 36.75% from 45.86% in the old series with 2012 as the base year. India's retail inflation has so far been prone to volatility due to volatile vegetable prices, a phenomenon attributable to supply constraints.

 

FLEXIBLE INFLATION TARGETING REGIME

The change in methodology for computing headline CPI also comes when the central bank's flexible inflation targeting regime is up for a review. The government, in consultation with the RBI, determines the CPI inflation target once in five years. Under the monetary policy framework, the government has set a 4% CPI inflation target from Apr. 1, 2021, to Mar. 31, 2026, within a tolerance band of 2% to 6%. The existing framework is set to lapse on Mar. 31.

According to Malhotra, the central bank has already submitted its recommendation to the government following the stakeholder views, and it is "still under examination by the government". "The government will very quickly be coming out with the target," the governor said. 

 

He, however, noted that "merely because of the change in CPI series," the target may not change. Even though those changes in their direction are very material--in terms of methodology, coverage, representativeness, volatility--they are not substantially high enough to warrant changes to the target "only" because of this, the governor said. 

 

The RBI had released a discussion paper on Aug. 21, seeking views on four questions, including whether the 4% inflation target was optimal for balancing growth with stability in India. The RBI had also sought views on whether the target inflation level should be completely removed and only a target range be maintained. 

 

The monetary policy framework was introduced in May 2016 with the implementation of the flexible inflation targeting framework. In the first review conducted in March 2021, the target and range were retained for a period of five years, ending in March 2026.

 

The RBI had also sought feedback on whether the tolerance band around the target should be revised from the current 2-6% or even done away with. The RBI said that the current tolerance band allows flexibility to account for shocks in the prices of food, energy, and other volatile components, as well as any forecast and measurement errors. The last question on which the RBI had sought views was whether headline inflation or core inflation would best guide the monetary policy.  End

 

Reported by Aaryan Khanna

Written by Priyasmita Dutta

Edited by Akul Nishant Akhoury

 

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