India has introduced a sweeping overhaul of the Consumer Price Index (CPI), updating how retail inflation is calculated in the country.
On Thursday (February 12), the Ministry of Statistics and Programme Implementation (MoSPI) formally will unveil the revised CPI series, replacing the 2012 base year with 2024 and incorporating a wide-ranging set of methodological and structural changes.
The update marks the first full recalibration of the inflation framework in over a decade and aligns official statistics with how Indian households currently allocate their spending.
The changes are rooted in findings from the Household Consumption Expenditure Survey (HCES) 2023-24 and reflect the evolution of the economy toward services, digital transactions, and diversified consumption patterns.
Saurabh Garg, secretary at MoSPI, said that adopting a regular revision cycle would improve “user confidence by making the statistical system more responsive to economic change,” highlighting the rationale behind modernising the inflation architecture.
CPI in India: Why it matters
The Consumer Price Index serves as India’s principal indicator of retail inflation.
Compiled and released by the National Statistical Office (NSO) under MoSPI, it measures the change in prices of a fixed basket of goods and services consumed by households.
These range from essential items such as milk, cereals, vegetables, fuel and medicines to discretionary spending on transport, communication, housing and now digital services.
The CPI is central to macroeconomic management. The Reserve Bank of India (RBI) uses it as the anchor for monetary policy. The inflation target is set at 4 per cent, with a tolerance band of 2 per cent to 6 per cent.
Movements in CPI data directly influence decisions on policy rates, which in turn affect borrowing costs, EMIs, and overall liquidity conditions.
In addition, CPI-linked indices help determine Dearness Allowance (DA) revisions for millions of government employees and pensioners. Given this centrality, updating the base year and methodology becomes essential when consumption patterns shift significantly over time.
The shift from 2012 to 2024: Why the reset was necessary
For 14 years, inflation was measured against a base year of 2012. During that period, India’s economy underwent substantial transformation. Digital platforms expanded rapidly, service-sector consumption rose, rural markets evolved, and lifestyle expenditure increased.
The HCES 2023-24 revealed changes in how households distribute their spending. As incomes rise, the share allocated to food tends to decline while spending on services, transport, housing, communication and leisure grows.
MoSPI’s decision to adopt 2024 as the new base year reflects these developments.
The revised CPI incorporates findings from the latest survey, ensuring that weights assigned to different categories correspond to current expenditure realities rather than patterns from over a decade ago.
The government has also signalled its intention to revise the base year of major macroeconomic indicators more frequently going forward.
Plans include updating the GDP base year every five years and conducting the next household consumption survey after a three-year interval. The objective is to maintain statistical relevance in a rapidly evolving economy.
How India’s new CPI is re-weighting the ‘basket’
The most prominent structural adjustment concerns the share of food and beverages in the CPI.
Under the previous framework, food and beverages accounted for 45.9 per cent of the overall basket. In the revised 2024 series, that combined weight has been lowered to 36.8 per cent. Food alone has declined from 39.1 per cent to 34.8 per cent.
Recent expenditure data supports this shift. Food now constitutes 39.7 per cent of urban household spending, compared to roughly 43 per cent in 2011-12. In rural India, the proportion stands at 47 per cent, down from 53 per cent previously.
This recalibration reflects rising incomes
and diversification of spending priorities. It also captures classification adjustments; certain prepared meals have been moved outside the food category.
Food prices have historically exhibited high volatility due to weather fluctuations, supply disruptions and seasonal cycles.
A smaller food weight reduces the sensitivity of headline inflation to short-term spikes in vegetable or cereal prices. Nevertheless, food remains the single largest category within the CPI.
As food’s relative importance declines, other components have expanded.
The weight of services and miscellaneous items has risen to around 30 per cent, compared to 23 per cent in the previous series. Core goods have increased to 27 per cent from 22 per cent. Housing’s share has grown from roughly 9-10 per cent earlier to approximately 12 per cent.
The expansion of housing weight partly reflects the systematic inclusion of rural house rents for the first time. Previously, rental data largely focused on urban areas. The addition of rural housing aims to better represent the changing dynamics of village economies.
The overall basket now comprises 358 weighted items, up from 299 earlier.
Within this, 308 goods are tracked (compared to 259 previously) and 50 services (up from 40). The internal structure has been significantly refined, organised into 12 divisions, 43 groups, 92 classes and 162 sub-classes. The earlier system operated with a much narrower grouping arrangement.
The revised CPI will also provide item-level indices separately for rural and urban areas at the state level, enabling more granular analysis of price pressures.
What modern consumption has been accommodated in India’s new CPI
The updated basket incorporates numerous items reflecting contemporary spending habits.
Newly tracked categories include:
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OTT streaming subscriptions such as Netflix
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Airline tickets
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Telecom plans
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E-commerce pricing
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Wearable fitness bands
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Gadgets such as AirPods
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Packaged snacks like nachos
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Personal care items including sanitisers
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Pet-related expenditure
These additions illustrate the transition toward digital, experience-oriented and convenience-based consumption.
Simultaneously, outdated items such as VCRs, typewriters and cassette players have been removed to ensure the index mirrors present-day realities.
Despite the inclusion of modern goods, essential categories such as milk, fuel, medicines, cooked food and housing continue to hold substantially higher weights than discretionary lifestyle items.
Gold and silver jewellery, a significant and often volatile segment, retains broadly similar importance in the revised structure.
What India’s new CPI may mean for you
Ahead of the release, a Reuters poll estimated that annual retail inflation likely rose for a third consecutive month to 2.4 per cent in January, driven by firmer food prices and higher gold and silver costs alongside diminishing base effects.
Economists estimate that, based solely on the new weight structure, January 2026 CPI inflation could be close to 3 per cent, roughly 50 to 80 basis points above what the earlier series might have indicated.
The
Economic Survey released last month projected inflation to remain benign in the coming year, and analysts expect CPI to remain within a manageable range.
Because CPI serves as the primary inflation benchmark for the RBI, any change in measurement affects monetary policy deliberations. A greater weight for housing and services could result in inflation readings that reflect persistent cost pressures in these areas more clearly.
Policy decisions on repo rates, in turn, influence borrowing costs for home and vehicle loans.
CPI-linked indices play a crucial role in determining Dearness Allowance revisions for government employees and pensioners. The recalibrated base year ensures that future adjustments more accurately capture the cost of contemporary living, including digital services and evolving consumption needs.
Based on the latest data preceding the revision, a 2 per cent DA increase has been confirmed for January 2026, taking total DA to 60 per cent.
More detailed and geographically disaggregated data enables policymakers to identify sector-specific inflation pressures. For instance, if health or education costs accelerate disproportionately, targeted interventions become easier to justify.
Although housing coverage now includes both rural and urban areas and excludes employer-provided accommodation, questions persist regarding whether rental inflation in major metropolitan areas is fully captured.
The increase in housing weight incorporates rural housing, where rental inflation tends to be lower, potentially moderating the aggregate housing inflation figure.
Similarly, while the health component remains significant, details about enhancements in measuring healthcare costs have not been elaborated extensively in public disclosures.
How India’s new CPI adapts to modern realities
For the first time, MoSPI has begun collecting price data from digital platforms. Prices are being sourced from online marketplaces including Amazon and Swiggy across 12 cities with populations exceeding 2.5 million, reported
Airline fares and OTT subscriptions are now tracked directly through digital channels.
For items with centralised or regulated pricing — including fuel, rail fares, electricity and telecom services — data is drawn from administrative sources to enhance consistency.
Field operations have shifted to tablet-based systems equipped with geo-tagging, real-time validation mechanisms and supervisory dashboards. These tools are intended to reduce lags, improve data integrity and strengthen transparency.
Geographical sampling has also broadened significantly. Rural coverage now spans 1,465 villages across 686 districts, compared to 1,181 villages in 582 districts earlier. Urban coverage has expanded to 1,395 markets in 434 towns, up from 1,114 markets in 310 towns.
A notable structural reform is the adoption of the Classification of Individual Consumption According to Purpose (COICOP 2018), a United Nations-endorsed framework for categorising household expenditure.
This move brings India’s inflation measurement methodology closer to international practice and enhances comparability across countries.
Since the HCES 2023-24 was not originally mapped to COICOP, extensive reclassification work was required. Clothing and footwear categories, which were not gender-specific in the survey, have been split into men’s, women’s and children’s segments using Census 2011 demographic data.
Tuition fees have been separated into primary, secondary and higher education components, drawing on enrolment information from UDISE and the All India Survey on Higher Education (AISHE) 2021-22.
Under the earlier system, when food grains such as rice and wheat were distributed free under government schemes, their weights were redistributed across other items. This had the potential to distort inflation readings, reported HT’s Mint.
The new framework excludes free social transfers from the CPI basket, recognising them as government transfers rather than market-based household consumption.
Additionally, missing price observations are now handled through a standardised imputation methodology instead of reallocating weights, reducing volatility in monthly readings.
MoSPI has also stated that the revised series will include back data and a linking factor to ensure continuity with the previous index.
With inputs from agencies
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