SYLLABUS

GS-3: Indian Economy and issues relating to planning, mobilisation of resources, growth, development and employment.

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• The Ministry of Statistics and Programme Implementation released the latest inflation data based on the Consumer Price Index for February 2026.
• Retail inflation increased to 3.21% in February 2026, marking the highest level recorded in the last ten months.
• The inflation rate rose from 2.74% in January 2026, which indicates a moderate increase in price pressures across several consumption categories.
• The data has been released under the new CPI series with base year 2024, which replaced the earlier series with base year 2012 and expanded the basket of items used to measure inflation.
• Economists estimate that headline CPI inflation may increase to around 3.3 to 3.5% in March 2026, depending on global commodity prices and domestic fuel costs.
• Despite the recent increase, inflation continues to remain below the Reserve Bank of India's medium-term target of 4%, which indicates relatively stable price conditions in the economy.

Key Drivers of Inflation Increase

• Rise in Food Inflation: The year-on-year inflation in the Consumer Food Price Index increased to 3.47% in February 2026 compared with 2.13% in January. The rise in food prices contributed significantly to the increase in overall inflation.
• Increase in Tobacco and Related Products: Inflation in the category of paan, tobacco and intoxicants increased to about 3.6% in February, reflecting higher prices in these consumption items.
• Housing Inflation: The year-on-year housing inflation rate in February 2026 stood at 2.12%. The inflation rates were 2.43% in rural areas and 2.00% in urban areas.
• Items with Low Inflation: The items that recorded the lowest inflation at the all-India combined level in February 2026 included garlic, onion, potato, arhar and litchi.
• Items with High Inflation: The items that recorded the highest inflation during the month included silver jewellery, gold and platinum jewellery, coconut copra, tomato and cauliflower.
• Sharp Increase in Precious Metal Prices: Inflation in the category of personal care, social protection and miscellaneous goods and services remained extremely high due to the sharp increase in the prices of precious metals such as gold and silver.

External Factors Influencing Inflation

• Impact of West Asia Conflict: The ongoing tensions in West Asia have disrupted global fuel supplies, which may increase prices in electricity, gas and other fuel-related categories.
• Increase in LPG Cylinder Prices: The increase in prices of domestic and commercial LPG cylinders in early March is expected to exert upward pressure on inflation in categories such as restaurant services and accommodation.
• Rupee Depreciation and Global Uncertainty: The depreciation of the Indian currency, along with uncertainty in global markets, has contributed to rising prices of commodities such as gold and silver.

About Consumer Price Index (CPI)

• The CPI measures changes in prices of goods and services consumed by households and serves as a key indicator of cost-of-living inflation.
• The CPI is the Reserve Bank of India’s primary inflation gauge and plays a central role in monetary policy and interest rate decisions.
• The base year is the reference point against which price changes are measured, with its index fixed at 100.
• As household consumption patterns evolve, the base year is periodically updated to ensure the index remains representative.
• The earlier CPI series (base 2012) had become outdated due to major structural shifts such as rising incomes, urbanization, digitalization, expansion of services, and changing consumption patterns.
• The revision aligns with IMF recommendations of updating CPI baskets periodically.
• The new series is based on the Household Consumption Expenditure Survey (HCES) 2023–24, ensuring alignment between consumption weights and current price structures.
• The 2024 CPI series expansion, based on the HCES 2023–24, increased the total item basket from 299 to 358 to better reflect modern consumption patterns. Goods increased to 308 (from 259) and services to 50 (from 40).
  • New additions include OTT subscriptions, digital storage devices, exercise equipment, rural housing rent, etc., while Obsolete items such as VCRs, cassette players, and other outdated electronics have been removed.
• The weight assigned to food items in the CPI basket has declined from about 45.9% to around 36.75%, which reduces the impact of food price volatility on headline inflation.