Goldilocks or Statistical Reset? The Truth Behind the 2.75% Inflation

Speaking in the Rajya Sabha on February 12, Finance Minister Nirmala Sitharaman was unequivocal: "There is no inflation crisis right now." Replying to the Budget discussion, she framed the current economic climate as a "Goldilocks moment"—a rare alignment of high growth (7.4% projected GDP) and low inflation.

The numbers released by the Ministry of Statistics (MoSPI) appear to back her. Retail inflation for January 2026 stood at 2.75%, well within the RBI’s 2–6% comfort zone. However, this isn't just a drop in prices; it is the debut of a brand-new measuring tape.

The Big Reset: What Changed?

For the first time since 2012, India has updated its Consumer Price Index (CPI) base year to 2024. This isn't just clerical housekeeping; it’s a structural pivot.

The new "basket" reflects a "New India" that spends less on rotis and more on routers. Food and beverages, which once dictated nearly 46% of the index, now account for only 36.75%.

Key Shifts in the 2024 Basket:

• The Service Surge: Items like OTT subscriptions, gym equipment, and babysitters have entered the weightage.

• Rural Reality: For the first time, rural house rent is included, acknowledging that the village economy is no longer just about agriculture.

• The Weight Drop: Cereals like rice and wheat saw their shares nearly halved, reflecting rising incomes and diversified diets.

The "No Crisis" Argument: Proven vs. Alleged

The FM’s claim that inflation has been "tamed and stabilized" relies on a 12-month streak of inflation staying below the RBI's 4% medium-term target.

What is Proven:

• Headline Stability: At 2.75%, headline inflation is undeniably low.

• Rural Relief: Unlike 2024, rural inflation (2.73%) is now lower than urban inflation (2.77%), suggesting a cooling of the "rural stress" narrative.

• Supply-Side Gains: Efficient manufacturing and GST neutrality have dampened price pressures in the industrial sector.

What is Disputed:

• The "Outlier" Problem: While the headline is low, specific segments are on fire. Personal care and miscellaneous goods surged by 19%, driven largely by a massive spike in gold and silver prices.

• Statistical Mirage: Critics argue that by reducing the weight of food—the most volatile and visible expense for the poor—the government has "statistically lowered" the headline without necessarily reducing the cost of living for the bottom 20%.

Stakeholders: Who Wins?

1. The RBI: With inflation at 2.75%, the Monetary Policy Committee (MPC) has more room to maintain its "neutral" stance, though they kept the repo rate unchanged at 5.25% this month.

2. The Middle Class: The expansion of the basket to include services and digital goods means the CPI now more accurately reflects their actual lifestyle.

3. The Government: A low CPI print justifies the "realistic nominal GDP projections" used in the 2026-27 Budget.

What Happens Next?

The honeymoon period for the new 2024 series may be short-lived. Analysts at Kotak Mahindra Bank and Anand Rathi suggest that while the trajectory is "benign," the rate-cutting cycle may have ended. As base effects fade and precious metals remain volatile, the headline could edge back toward 4% by mid-2026.

Is the crisis truly over, or have we simply changed how we define a crisis?

FAQ: The New CPI Series 2026

1. Why was the CPI base year changed to 2024? To reflect modern spending habits captured in the 2023-24 Household Consumption Expenditure Survey, moving away from outdated 2012 patterns.

2. Why does my grocery bill feel high if inflation is only 2.75%? The weight of food in the index has dropped significantly. While overall inflation is low, specific items like silver jewellery (159% inflation) or personal care remain very high.

3. What new items are in the inflation basket? OTT streaming services, pen drives, exercise equipment, and even "babysitters" are now part of how India calculates its cost of living.

4. Has food inflation really gone down? Yes, under the new series, food inflation for January was 2.13%. However, its lower weight means its impact on the final "headline" number is smaller than before.

5. Which states have the highest inflation? Kerala and Lakshadweep remain outliers, breaching the upper tolerance band of 6%, while Delhi and Himachal remain below the national average.

6. Will the RBI cut interest rates now? Despite low inflation, the RBI kept the repo rate at 5.25% in February, citing risks from precious metal prices and global trade dynamics.