The Overdue New CPI Series

 

The Ministry of Statistics & Programme Implementation has finally released the new Consumer Price Index (CPI) on 12 February 2026, updating the base year from 2012 to 2024=100. The new CPI is pegged to consumption patterns from the household consumption expenditure survey 2023-24. The previous series had 2012 as its base year and was based on consumption patterns of 2011-12.

As the Chief Economic Adviser, Anantha Nageswaran observed, India has changed significantly over the last decade, both in terms of consumption behaviours and the composition of household expenditure. For instance, 80 crore households are now receiving free foodgrain under the Pradhan Mantri Garib Kalyan Anna Yojana (PMGKAY). This obviously reduces the amount spent on food. That aside, many new service offerings, such as over-the-top video streaming, gaming & metaverse Services, online market means, etc., have emerged. The lifestyle of the common man has thus drastically changed over the last decade.

The new CPI series addresses these changes commendably. The weightage of food and beverages in the overall CPI has been reduced to 36.75% from 45.86% in the earlier CPI. This is indeed a significant move, for food prices hitherto have a far greater influence on the overall inflation rate, despite their shrinking share in households’ monthly expenditures. Over it, food prices in India are notoriously volatile, for they quickly reflect supply bottlenecks caused mostly by the vagaries of weather. Indeed, this adjustment also captures the fact of reduction in the proportion of income spent on food by households owing to their rising living standards across the geography and thereby presents a more reliable inflation data for the policymakers.

Secondly, as India’s service economy is growing faster than the economy’s average growth rate, price levels in the sector will have a significant impact on the inflation behaviour. In order to capture this growing phenomenon, the new index covered many new items from this sector, which is likely to improve the quality and representativeness of the index.  For the first time, the index included the data collected from 12 ecommerce platforms, in addition to the data collected from more marketplaces across the country.  This inclusion of price information from digital channels may enable the policymakers at the state level to better distinguish the inflation dynamics prevailing in urban and rural areas and initiate necessary measures to counter the so emerging challenges.   

One noteworthy feature of the new index is its adoption of the international Classification of Individual Consumption by Purpose (COICOP) 2018 framework for grouping household consumption expenditure on goods and services. It offers several key benefits: granular dissemination of data, improved accuracy on modern consumption, precise classification by usage, global comparability and importantly, allows policymakers to identify specific inflationary pressures in modern service sectors.

The importance of more accurate inflation data for macroeconomic stability hardly needs to be stressed here, for it plays a pivotal role in orchestrating fiscal and monetary policies.  It is in that context that assigning a realistic weightage for food items in the new index augurs well in making the index more stable. Similarly, increase in the number of weighted items in the basket to 358 from the existing 299 and within this, goods have risen to 308 from 259 and services from 40 to 50, inclusion of rural housing, online media, etc., is certain to improve the strength of the index. All this, in turn, shall enhance the scope for predicting budget allocations, for some aspects of the budget, such as inflation-linked dearness allowances and dearness relief, are linked to the CPI.

Similarly, the well-constructed new CPI will aid the Reserve Bank of India, particularly its Monetary Policy Committee, in framing various policy interest rates by providing an accurate estimate of the prevailing inflation rate. This shall enable the RBI to focus more on aggregate demand pressures rather than manoeuvring the supply-induced inflation through a demand-sensitive variable like the interest rate. The new CPI is likely to improve the assessment of poverty levels as well.

According to the new CPI, the inflation rate increased to 2.75% in January as against 1.33% in December (under the old CPI). Although the Ministry of Statistics & Programme Implementation provided the back-series data, some experts opined that the conversion is largely mechanical, for it applied the ‘linking-factor’ to previous data rather than reconstructing the entire old basket to mirror the new, updated consumption patterns, which would have facilitated easy comparative analysis. 

The Ministry has indeed delivered an updated, digitally supported and analytically stronger CPI. The new index portraying methodological rigour and practical relevance, reflects international alignment.   Nevertheless, the ministry should engage in reviewing the index once in every five years with greater coverage, accuracy and offer without fail a representative index of India’s fast changing consumption landscape.

**