After remaining stable year-on-year in December 2025, food inflation reached an eight-month high of 1.4 percent in January. This rebound was accompanied by a sharp increase in core inflation (excluding volatile food and fuel), which rose to a 38-month high of 3.2 percent in January, up from 2 percent in the previous month.
“The hardening in global commodity prices and depreciation in the USD/INR pair over the past few months are likely to have put upward pressure on the core index, which rose 1.4 percent on a sequential basis in January 2026, the sharpest gain in 45 months,” said Rahul Agrawal, senior economist at ICRA.
This comes after India’s retail inflation, according to the new base year series for 2024, stood at 2.75 percent in January, while the consumer price index for food was settled at 2.13 percent during the month.
According to WPI data, primary food items recorded an inflation of 1.55 percent in December, ending an eight-month contraction period led by price hike in vegetables (6.78 percent) and rising inflation in paddy (0.89 percent) and eggs, meat and fish (3.66 percent) in January from the previous month.
Notably, vegetable inflation turned positive in January after almost a year of deflation, with prices last rising by 8.11 percent in January 2025. Madan Sabnavis, chief economist at Bank of Baroda, believes supply shortages and base effects can be attributed to the rise in vegetable prices in the month.
Moreover, pulses (-11.05 percent) and onions (-33.42 percent) showed declining deflation in January compared to the previous month.
ICRA expects WPI food inflation to harden further as the impact of an adverse base increases. Moreover, rising global commodity prices and the lagged effect of USD/INR depreciation are likely to keep import costs high.
Overall, the agency expects WPI inflation to rise to ~2.0-2.2 percent by February 2026.
Inflation for manufactured goods – which has a weight of more than 64 percent in the index – rose to a ten-month high of 2.86 percent in January, up from 1.82 percent in December. Sabnavis attributed this to a 6 percent increase in metal prices. “This reflects global impacts as there has been a rally in this segment amid the economic and political situation,” he added.
The fuel and energy group remained in deflationary territory for the tenth month in a row, down 4 percent.
Sabnavis expects the WPI inflation numbers to have no impact on monetary policy, but believes the numbers are still indicative of favorable prices from a corporate perspective, where costs will be under control. “Considering the lower customs duties on various raw materials, there will be a downward trend in the prices of manufactured products, which will be significantly dependent next year,” he reckoned.
Since the timeline for the rollout of a new WPI series has not yet been specified, Sabnavis noted that the upcoming GDP series with base year 2022-2023 would continue to rely on the existing WPI (base 2011-2012) as deflators for different segments in the national product.
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