Source: TH
Why in News?
India has revised the Consumer Price Index (CPI) base year to 2024, updating how inflation is measured to better reflect current household spending patterns.
What Has Changed?
- Earlier CPI grouped consumption into 6 broad categories.
- New CPI follows COICOP 2018 classification with 12 detailed categories.
- Based on updated Household Consumption Expenditure Survey (HCES) data.
Major Structural Changes
- Food weight reduced in CPI basket.
- Housing and services weight increased.
- Rural housing and utilities now better captured.
Reflects long-term shift in spending from food to services and housing.
Understanding CPI vs Inflation
- CPI level shows how expensive goods are compared to base year.
- Example: CPI 104.46 → basket costing ₹100 in 2024 now costs ₹104.46.
- Inflation rate shows how fast prices rise year-to-year.
- Example: 2.75% inflation = price rise from 2025 to 2026.
State-Level Inflation Insights
Highest inflation (Jan 2026) among large States:
- Telangana — ~5%
- Kerala — ~3.67%
- Tamil Nadu — ~3.36%
- Rajasthan — ~3.17%
- Karnataka — high inflation due to services
Reason: higher spending on services like housing, health, education, transport.
Why Rajasthan Shows Higher Inflation
- New CPI includes rural housing and utilities more accurately.
- Earlier CPI understated non-food inflation in rural areas.
Importance for Monetary Policy (RBI)
- Helps RBI distinguish between:
- Temporary food price spikes, and
- Persistent service price inflation.
- Better assessment of long-term inflation trends.
- Improves interest-rate decision making.
