India's Inflation Dynamics Set for Change with New CPI Series Launch

India is set to introduce a new CPI series in February, ending the 2012-based model. Nomura anticipates a gradual rise in CPI inflation due to updated weights and data collection methods. The shift prioritizes core categories over staple foods, potentially stabilizing headline inflation volatility driven by food prices.

India's inflation dynamics are on the cusp of a significant transformation as a new Consumer Price Index (CPI) series is slated for launch in February. This marks the conclusion of the outgoing 2012-based CPI series, which ended December with a modest uptick. According to Nomura, the introduction of the 2024 base year is expected to result in a gradual rise in CPI inflation in the forthcoming months.

The overhaul involves recalibrating weights to emphasize core categories rather than staple food items, accompanied by notable methodological upgrades in data collection. Nomura's report highlighted that December's headline inflation recorded a year-on-year rise to 1.3% from November's 0.7%, primarily due to easing food price deflation and the diminishing impact of favorable base effects.

Nomura forecasts that the Reserve Bank of India (RBI) will first focus on maintaining policy transmission and liquidity. Although a 25 basis point rate cut reduced the rate to 5.25% in December, Nomura anticipates further easing, projecting a terminal rate of 5.00% with a final cut expected in April.

(With inputs from agencies.)