From tomorrow, the revised Consumer Price Index (CPI) series will be rolled out, with the base year updated to 2024 from 2012. While it may appear to be a routine statistical exercise, the shift carries broader implications for monetary policy, interest rates, and ultimately, household finances.
The CPI is the Reserve Bank of India’s primary inflation gauge. It influences everything from home loan EMIs to deposit returns and government policy decisions. When the way inflation is measured changes, the ripple effects extend well beyond government data releases.
Why the base year is being changed
The Ministry of Statistics and Programme Implementation (MoSPI) has launched a comprehensive revision of three of India’s most closely tracked economic indicators — Gross Domestic Product (GDP), the Index of Industrial Production (IIP), and the CPI. The objective is straightforward: ensure official data reflects the structure of today’s economy rather than that of a decade ago.
A base-year revision keeps statistics aligned with changing consumption and production patterns. Over time, economies evolve, incomes rise, lifestyles shift, and spending priorities change. Without periodic updates, inflation numbers risk telling an outdated story.
According to MoSPI, the overhaul incorporates methodological improvements, richer data sources and updated weights to better capture present-day consumption trends. In essence, the numbers are being recalibrated to reflect modern India.Also Read | India to revise base year for CPI, GDP, industrial output data every 3-5 years, official says
A changing consumption basket
The most notable change in the new CPI series is the reduced weight of food and beverages. Their share in the index will decline to 36.75% from 45.86%, signalling a structural shift in household expenditure patterns.
As incomes rise, households typically spend a smaller proportion of their budgets on basic staples and more on services and discretionary consumption. The revised weights reflect this transition. Spending on transport, communication, housing, health, recreation and personal care has gained prominence, pointing to a more service-driven and urbanised consumption basket.
Restaurants and accommodation services have also been assigned a greater share, underscoring how lifestyle spending has become more integral to household budgets than it was a decade ago.
This redistribution of weights is not merely technical. Because food prices are often volatile, a lower food weight could reduce sharp swings in headline inflation and provide a more balanced picture for policymakers.
Also Read |GDP, inflation, output: India hits reset on key economic numbers
What it means for inflation readings
The Reserve Bank of India targets inflation at 4%, with a tolerance band of plus or minus two percentage points. The CPI is the anchor for that framework.
With the revised weights, inflation readings may shift modestly. SBI Research has estimated that overall CPI could rise marginally by 20 to 30 basis points under the new series, assuming unchanged price levels. The impact may not be dramatic, but even small adjustments matter when policy decisions hinge on decimal points.
Retail inflation recently climbed to a three-month high of 1.3% in December from 0.7% in November as food deflation eased and price pressures strengthened in miscellaneous items. For 2025 as a whole, inflation averaged 2.2%, the lowest in 12 years. The revised series could alter how such trends are interpreted going forward.
Bringing the digital economy into the data
For the first time, the CPI will incorporate price data from 12 online markets in cities with populations above 25 lakh, capturing price variations on e-commerce platforms. This marks a significant step toward reflecting how Indians increasingly shop.
Rural house rent will now be included alongside urban rent, broadening the coverage of housing costs. Services such as telecom and OTT subscriptions have also been added, acknowledging the expanding role of digital consumption in everyday life.
The revamped series will track 358 weighted items — 308 goods and 50 services — across 1,465 rural and 1,395 urban markets. The wider and more granular coverage aims to produce a more representative inflation measure.
Reflecting a wealthier India
According to MoSPI Secretary Saurabh Garg, household expenditure has more than doubled over the past decade, reflecting an overall rise in socio-economic status, Bloomberg reported.
India’s consumption basket has shifted noticeably. Spending on cereals such as rice and wheat has declined proportionally, while expenditure on fruits, vegetables, dairy and meat has increased. As disposable incomes expand, households diversify their diets and prioritise higher-value consumption.
“You spend more on fresh fruits and vegetables when you have slightly larger disposable incomes,” Garg observed, highlighting how inflation statistics increasingly mirror deeper social change.
Why it matters to every household
Inflation is not just a macroeconomic concept. It shapes borrowing costs, savings returns and purchasing power. A recalibrated CPI may not immediately change prices at neighbourhood stores, but it can influence how the central bank interprets price pressures and decides on interest rates.
India’s new CPI series is, therefore, more than a statistical reset. It is an attempt to capture a transforming economy — one that is more urban, more service-oriented and more digitally connected than it was in 2012.