This is highest level for the CPI level of inflation since June 2014.
The inflation for December, 2016 recorded at 3.41 per cent.
Retail inflation has declined because of the impact of cash crunch following demonetization of old Rs 500 and Rs 1000 notes with effect from November 9, 2016, experts said.
Retail inflation cooled to five-year low in January on the back of sliding vegetable and food prices but the lurking price pressure may prompt the Reserve Bank of India (RBI) to maintain a wait-and-watch policy on interest rate for now.
Driven by fall in the prices of vegetables, pulses and scarcity of cash in the hands of individual arises due to government's sudden noteban in November a year ago, the inflation-based on Consumer Price Index (CPI) dipped by 3.17 per cent in January, 2017 against 5.69 per cent in the same month previous fiscal.
For example Pan, intoxicants: 6.4%, clothing and footwear: 4.7%, Housing 5.0%, Fuel and light: 3.4% "Clearly the non-food components have registered an increase and would tend to be upward moving going ahead".
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Consumer prices rose by an annual 3.17% last month - their slowest pace since January 2012 when the government launched the current index series.
India's inflation slowed slightly more than expected in January, data from the Central Statistics Office revealed Monday.
Howard Archer, chief United Kingdom economist at forecaster IHS Global Insight, said: 'Inflation is expected to have been lifted in January by higher fuel prices and increased food prices'.
Last year the respected research body the National Institute of Economic and Social Research said the slump in the pound and rising high street prices would see inflation hit 4% later this year.
The consumer demand in the country has taken hit after the government chose to scrap old Rs 500 and Rs 1,000 notes, almost 86% of the total cash in circulation. For urban sector, it was at stable at 2.90%.