Govt revamps inflation index
The Centre has introduced a new Consumer Price Index (CPI) series with 2024 as the base year, replacing the earlier 2012-based index. The shift changes how inflation is measured in order to better reflect today’s consumption patterns.
The Consumer Price Index measures changes over time in the retail prices of goods and services consumed by households. Inflation is calculated as the year-on-year percentage change in the CPI. In India, CPI is the primary inflation measure used by the RBI for monetary policy.
Released by the National Statistics Office, the new series widens the coverage to 358 items from 299 with price data now collected from 1,465 rural and 1,395 urban markets, as well as 12 online marketplaces. The new CPI series expands classification from six to 12 groups, adding several standalone categories to provide greater granularity.
The weight of food and beverages has been reduced to 36.75 per cent from 45.86 per cent, potentially lowering headline volatility. Housing, now expanded to include utilities, carries a 17.67 per cent weight. Paan, tobacco and intoxicants rose to 2.99 per cent, while clothing and footwear fell to 2.38 per cent. Index values under the new series are available from January 2025, making year-on-year inflation comparable only from January 2026.
The first reading under the revised framework shows retail inflation in January 2026 at 2.75 per cent, an eight-month high but still within the Reserve Bank of India’s (RBI) tolerance band. According to the new CPI series, Telangana had the highest inflation at 4.92 per cent, followed by Kerala and Tamil Nadu.
According to the data, the top 5 items with low inflation in January were garlic, onion, potato, arhar, tur dal, and peas. On the other hand, high inflation was in silver jewellery, tomato, coconut-copra, gold, diamond, platinum jewellery, and coconut oil.
Reacting to this, said the new CPI series will improve the quality of data used in formulating monetary and fiscal policies. “Since the CPI basket is now aligned with recent expenditure data, the inflation signals derived from this will be more closely matched with the economic conditions. This improves the information basis for calibrating monetary and fiscal policy,” Chief Economic Advisor V Anantha Nageswaran said at a press conference on the new CPI series.
