Prices have cooled from last year’s peaks, yet families still feel the squeeze. Food and fuel set the tone for monthly budgets, while fees, health, and transport add pressure. New data show inflation is low but uneven across categories. Households respond with smaller pack sizes, digital payments discipline, and selective cuts that spare essentials.
What prices are doing now
Headline inflation stayed modest at the end of 2025, with rural and urban rates inching up but still low on-year. The official December release shows rural inflation at 0.76% and urban at 2.03%, with food in rural areas still negative on-year. However, families face sticky costs in housing, health, and services. The statistics ministry will also debut a new Consumer Price Index basket that trims food weight and adds more services, reflecting how people spend today. (Source: Government of India CPI release, 12 January 2026; Reuters report on CPI basket changes, 29 January 2026.)
Essentials first: food, fuel and the monthly shop
The Centre has extended free foodgrains under PMGKAY for five years from 1 January 2024, covering about 800 million beneficiaries. This buffer helps low-income households manage cereal costs. Cooking fuel is mixed: domestic LPG support for targeted users continues, while commercial cylinder prices rose by ₹49 from 1 February 2026, a cost that can pass through to eateries and services. (Sources: Department of Food & Public Distribution and PIB notes on PMGKAY; PIB on LPG subsidy; Times of India and Economic Times on commercial LPG.)
How families are adapting
Three shifts stand out. First, downtrading and small packs. NielsenIQ finds a consumer tilt toward smaller package sizes when budgets tighten; this trend persisted through 2025, especially in everyday FMCG. “Downtrading” means switching to cheaper brands or smaller packs to lower the bill. “Shrinkflation” is when pack sizes get smaller while the sticker price stays the same. Second, staggered buys: households space out non-essentials and push big-ticket items to festive windows or sale cycles. Third, category juggling: more home cooking when eating-out costs rise, but health spending remains priority. (Sources: NIQ snapshots on FMCG pack-size dynamics and rural demand.)
Digital discipline: UPI, SIPs and the rise of rules-based money
Digital rails now anchor budgeting. UPI set a new monthly record in January 2026 with 21.7 billion transactions, a sign that wallets track every rupee and split bills with ease. On the savings side, the Economic Survey notes a sharp rise in households’ use of equities and mutual funds over the past decade, with SIPs surging. These habits spread cashflows through the month and automate saving before spending. (Sources: Entrackr on January UPI volumes; Economic Survey 2025–26 highlights.)
Sentiment, not just statistics
Consumer mood improved in 2025 but lost momentum late in the year, according to CMIE’s Index of Consumer Sentiments. Households still showed appetite for durables, yet caution rose on jobs and prices. The RBI’s household survey also captured softer inflation expectations into 2026, which helps big-purchase planning. (Sources: CMIE analysis, 13 January 2026; Economic Times summary of RBI survey.)
Budget tactics families use in 2026
Families are rebuilding a simple playbook. They ring-fence staples, trim “nice-to-haves,” and swap brands where quality is comparable. They lock in recurring costs—school fees, rent—while seeking offers on discretionary buys. Many pre-pay utility bills when cash is flush and track spends weekly on UPI apps. Where credit is involved, they prefer equated monthly instalments that fit salary cycles; high-frequency trading costs or market swings matter less than steady SIPs for long-term goals. Meanwhile, they keep an eye on LPG, transport fares, and medical expenses—the items most likely to unsettle a month’s plan.
Policy signals to watch
Three policy levers shape the lived experience of prices. First, the new CPI basket will better reflect services and digital consumption, improving how inflation is measured and communicated. Second, food-grain support under PMGKAY cushions the poorest against cereal price spikes. Third, fuel revisions—domestic and commercial—filter into both household and small-business budgets. If global conditions stay calm, the inflation outlook remains benign; yet any energy shock or supply snag can quickly change the calculus. (Sources: Reuters on CPI weights; PMGKAY policy notes; LPG updates.)
India’s cost of living story in 2026 is one of adaptation. Prices are not surging, but wallets remain vigilant. With targeted subsidies, digital budgeting, and measured consumption, households are managing the squeeze and protecting priorities—even as they brace for surprises from fuel, fees, or a change in sentiment.