There is relief news for the Indian economy on the inflation front. According to the latest report of Bank of Baroda, under the new series of Consumer Price Index (CPI), retail inflation rate is expected to remain below the target of 4% set by the Reserve Bank. The report said that the new balance of ‘weighting’ in the basket of commodities used to calculate inflation will avoid unnecessary volatility in the data.
The report of Bank of Baroda shows that the effect of the new series has started becoming visible. Headline CPI in January 2026 came in at 2.8%, very close to the bank’s forecast of 2.9%. This data makes it clear that there is no major tension in most of the sub-components of inflation. This stability is important for monetary policy decisions. The report said that the new series is in line with contemporary and international standards, better capturing India’s changing consumption.
Declining dominance of TOP and Gold
In the old series, fluctuations in vegetable and gold prices often distorted headline inflation. This has been corrected in the new series:
TOP (Tomato, Onion, Potato): According to the report, the weightage of these three major vegetables has been reduced in the new series. This has helped eliminate the biases present in the earlier 2011-12 series, which is a major step forward from a monetary policy perspective.
Gold and Jewellery: In the new series, gold and other jewelery have been given less weightage than the old series. Although the slight volatility seen in the January data was mainly driven by gold prices, its overall impact remained limited due to the low weighting. The path ahead also looks positive. Bank of Baroda’s in-house tracker (BoB ECI) is moving -0.4% on a year-to-date basis for the first 11 days of February 2026, indicating softness in prices. However, the report also highlighted some concerns that need to be monitored:
Edible Oils and Pulses: There is no immediate risk to high-frequency food prices, except for edible oils like groundnut, sunflower and soybean and pulses like arhar and urad.
core inflation
The report warned that precious metals prices could pose an ‘upside risk’ to core inflation, so monitoring is necessary.
Overall, Bank of Baroda’s analysis assures that the new CPI series is not only in line with India’s changing consumption patterns, but also presents a more balanced and holistic picture. Due to a better balance of goods, inflation is expected to remain in the range of 4% (plus or minus two percentage points). This will give more clarity to the Reserve Bank of India in taking decisions on interest rates.
