Context: The Ministry of Statistics and Programme Implementation (MoSPI) is revising India’s Consumer Price Index (CPI) series to better reflect evolving consumption patterns, technological shifts, and changes in household expenditure. The revision, reported by The Economic Times, marks a significant methodological update aimed at improving the accuracy and relevance of inflation measurement.
Key Changes in the New CPI Series
Revised Base Year
- The CPI base year will shift from 2012 to 2024, aligning the index with current consumption behaviour and price structures.
Rebalanced Weights
- Food and beverages weight declines sharply from 45.86% to ~36.75%, reducing food dominance in headline inflation.
- Housing, water, electricity & gas weight rises from 16.91% to 17.66%.
- Transport and communication weight increases significantly from 8.59% to 12.41%, reflecting mobility and digital connectivity costs.
Public Distribution System (PDS) Treatment
- Free food grains provided under schemes such as PMGKAY are assigned zero weight, as they do not involve out-of-pocket expenditure.
Expanded Consumption Basket
- Number of weighted items increases from 299 to 358.
- New inclusions: smartphones, OTT subscriptions, international air travel.
- Exclusions: obsolete goods like VCRs and audio cassettes.
Digital Price Collection
- For the first time, 12 “Online Markets” in major cities will track prices directly from e-commerce platforms, improving coverage of digital transactions.
Improved Housing Measurement
- Rural housing rents are included for the first time.
- Employer-provided housing is excluded to avoid price distortion.
Greater Rural Representation
- Rural sector weight in CPI-Combined increases from 53.52% to 55.4%, acknowledging India’s demographic structure.
Global Classification Alignment
- The CPI structure shifts from 6 to 12 Divisions, fully aligning with UN COICOP 2018 (Classification of Individual Consumption According to Purpose).
Significance of the New CPI Series
- Lower Inflation Volatility: Reduced food weight limits sensitivity to monsoon shocks and vegetable price spikes.
- Contemporary Basket: Inclusion of digital services captures modern consumption trends.
- Accurate Living Costs: Rural rent inclusion improves housing inflation measurement.
- Global Comparability: COICOP alignment enhances international credibility of India’s inflation data.
- Engel’s Law in Action: Declining food share reflects rising incomes and diversification of spending.
About Consumer Price Index (CPI)
- CPI measures changes in retail prices paid by households for a representative basket.
- NSO publishes CPI-Rural, CPI-Urban, and CPI-Combined.
- Labour Bureau publishes CPI-IW, CPI-AL, and CPI-RL for wage indexation.
- Calculated using the Modified Laspeyres formula.
- Released monthly; perishables tracked weekly.
- CPI-Combined is India’s official inflation anchor under the RBI’s Flexible Inflation Targeting (FIT) framework.