Context
The Ministry of Statistics and Programme Implementation (MoSPI) has released details of a new Consumer Price Index (CPI) series, revising the base year from 2011–12 to 2023–24 and reducing the weight of food and beverages from ~46% to ~37%.
What is the New CPI Series?
The new CPI series is an updated framework for measuring retail inflation in India, featuring:
- Base year revision: 2011–12 → 2023–24
- Revised item weights based on the latest Household Consumption Expenditure Survey (HCES) 2023–24
- Expanded item coverage and improved methodology to reflect present-day consumption, including digital services
- CPI remains India’s headline inflation measure and the anchor for monetary policy under the inflation-targeting framework of the Reserve Bank of India
Organisations Involved
- Nodal Ministry: Ministry of Statistics and Programme Implementation
- Primary Data Source: Household Consumption Expenditure Survey (2023–24)
What is the Consumer Price Index (CPI)?
The Consumer Price Index (CPI) is a way to understand how the cost of daily life changes for ordinary people. It tracks how prices of common items like food, clothes, housing, healthcare, education, and transport change over time. In short, CPI shows how expensive or affordable life is for consumers.The Wholesale Price Index (WPI), on the other hand, measures price changes at the wholesale or producer level, before goods reach consumers. It reflects cost pressures faced by manufacturers and traders, not households.
In India, retail inflation based on CPI was only 1.33% in December 2025, which means prices paid by consumers increased very slowly. While this suggests low overall inflation, it does not always reflect the real burden faced by households, especially when prices of essential items like food fluctuate.
Key Types of CPI
What are the different CPI measures in India?
- CPI (Combined: Rural + Urban)
This is the main inflation number you hear in the news. It uses 2012 as the base year and is used by the Reserve Bank of India to decide interest rates and control inflation. - CPI for Industrial Workers (CPI-IW)
With 2016 as the base year, this index shows how prices affect factory and industrial workers. It is mainly used to revise Dearness Allowance (DA) for industrial workers and central government employees. - CPI for Agricultural Labourers (CPI-AL)
Using 2019 as the base year, this index tracks how the cost of living changes for farm labourers. It helps in fixing wages and studying the economic condition of agricultural workers. - CPI for Rural Labourers (CPI-RL)
Also based on 2019, this index focuses on price changes faced by rural labour households. It is used for minimum wage fixation and assessing rural livelihoods.
Who releases these indices?
- The National Statistical Office releases CPI-Combined, CPI-Rural, and CPI-Urban, which are mainly used for inflation measurement and economic policy.
- The Labour Bureau releases CPI-IW, CPI-AL, and CPI-RL, mainly for wage revision, DA calculation, and labour welfare.
What goes into CPI? (Basket of goods)
- Food & Beverages (45.86%) – biggest share, shows why food prices affect inflation the most
- Miscellaneous (28.32%) – includes health, education, transport, personal care
- Housing (10.07%) – rent and housing costs
- Fuel & Light (6.84%) – electricity, LPG, kerosene
- Clothing & Footwear (6.53%)
- Pan, Tobacco & Intoxicants (2.38%)
CPI shows how expensive daily life is for different groups of people, and different CPI versions exist because workers, farmers, and urban consumers face different price realities.
What is the Difference between Consumer Price Index and Wholesale Price Index?
| Aspect | Consumer Price Index (CPI) | Wholesale Price Index (WPI) |
|---|---|---|
| Meaning | Measures average price changes faced by consumers at the retail level | Measures average price changes at the wholesale or producer level |
| Type of Inflation | Retail inflation / cost-of-living inflation | Wholesale inflation / producer inflation |
| Compiled by | National Statistical Office, under Ministry of Statistics and Programme Implementation | Office of Economic Adviser, under Ministry of Commerce and Industry |
| Base Year | 2012 = 100 (revision underway to 2024) | 2011–12 = 100 |
| Use by RBI | Used by Reserve Bank of India for inflation targeting and monetary policy | Not used by RBI for inflation targeting |
What are the Key Issues Associated with India’s Consumer Price Index?
High Food Weight Bias
Food and beverages make up nearly 46% of the CPI basket, which means inflation numbers are heavily influenced by food prices. As a result, factors like poor monsoons, supply disruptions, or sudden spikes in vegetable prices can sharply push inflation up, even when prices of most other goods remain stable. This often overstates overall inflation.
For example:
In June 2024, a sudden jump in vegetable prices pushed headline CPI above the RBI’s tolerance band, even though core inflation (excluding food and fuel) stayed relatively moderate.
The “Digital Blindspot” – Invisible Modern Services
The CPI does not adequately capture the changing lifestyle of urban and middle-class households. It still reflects a pre-digital economy and fails to include many modern, essential expenses.
Costs related to smartphones, 5G data packs, OTT subscriptions, app-based services, and the gig economy are either missing or poorly represented. These have become basic necessities, especially after the post-2016 digital boom.
As a result, CPI underestimates the real cost of living, particularly for urban families who spend a growing share of income on digital services.
Supply-Side Driven Inflation Dominance
In India, inflation is often driven by supply shocks (food shortages, fuel prices, logistics costs) rather than excess consumer demand. Because of this, interest rate hikes are less effective in controlling inflation.
India imports around 85% of its crude oil, making inflation highly sensitive to global oil price shocks.
For example:
After the Ukraine war in 2022, global crude prices surged, sharply raising fuel and transport costs in India. This pushed CPI higher despite weak domestic demand.
Limited Regional Granularity
CPI mainly shows national and broad rural–urban averages, but it does not reflect state-wise or city-level price differences. This hides sharp local inflation pressures.
For example:
During the 2022–23 vegetable price shock, cities like Bengaluru and Hyderabad saw very high food inflation, while many eastern and northern states faced milder increases. However, CPI reported only a national average, masking these differences.
This limits the ability of state governments to design targeted tax, subsidy, or market interventions based on local inflation realities.
Disconnect with Wage Inflation
CPI inflation does not always move in line with wage growth, especially in the informal sector. Even when inflation appears low, incomes may not rise fast enough, reducing people’s real purchasing power.
For example:
In December 2025, CPI inflation fell to about 1.3%, but wage growth remained weak. Average monthly earnings were around ₹24,400 in urban areas and ₹17,000 in rural areas (PLFS 2023–24).
As a result, many low-paid and informal workers still experienced a decline in real living standards, showing that price stability alone does not ensure livelihood security.
Structural Underestimation of Housing Inflation
Housing has a 10.07% weight in CPI, but the index relies largely on outdated and frozen rental data, often from government housing, rather than actual market rents.
It also excludes imputed rent for rural households. Because of this, CPI fails to capture real-world rental increases and housing cost pressures.
As housing costs rise during real estate cycles, households face a much higher cost of living than CPI reflects.
Informal Market Issues
Since a large share of prices are collected from informal markets, it is difficult to properly account for quality changes, shrinkflation, and hidden price increases.
For example:
Many packaged food items reduce quantity while keeping the same price or quietly downgrade quality. These changes are often not fully captured in CPI data.
As a result, households experience a higher effective cost of living than official inflation numbers suggest, leading to underestimation of real inflation pressures.
While CPI is useful for macroeconomic policy, it has several structural limitations that prevent it from fully reflecting the real cost of living faced by Indian households today, especially in urban and informal sectors.
What Measures are Needed to Strengthen India’s Consumer Price Index?
Rebalancing Excessive Food Weight
Food and beverages make up almost 46% of the CPI basket, which means India’s inflation number reacts strongly to food supply shocks like poor monsoons or sudden price spikes. This often makes inflation look more serious than it actually is for the wider economy.
As incomes rise, people usually spend a smaller share of their income on food—a principle known as Engel’s Law. Reflecting this reality by gradually reducing food weight in CPI, while giving more importance to core inflation for policy signals, would help monetary policy work better—without neglecting food security concerns.
Strengthening Regional CPI
India’s CPI mostly shows national and broad rural–urban averages, which hides large differences in inflation across states and cities.
By expanding the number of price collection centres and publishing state-level and major city-level CPI data, policymakers could better understand local price pressures. This would support decentralised inflation management and improve coordination between the Centre and states when dealing with region-specific inflation problems.
Improved Measurement of Housing and Services Inflation
Even though cities are growing rapidly, housing and services inflation is not properly reflected in CPI due to limited coverage of real rental markets and methodological issues.
There is a need to better capture urban rents, private school fees, healthcare expenses, and transport costs. Using official data sources like municipal rental records, school fee databases, insurance premiums, and strengthening urban price surveys would make CPI reflect the true cost of living, especially in cities.
Managing Supply-Side Inflation
Much of India’s inflation volatility comes from supply-side factors—such as food shortages, fuel prices, and logistics costs—which interest rate policy cannot easily control.
Such situations require non-monetary solutions, including better buffer stock management, sensible trade policies, improved logistics, and agricultural market reforms. Stronger coordination between the Reserve Bank of India and ministries handling agriculture, food, and commerce would reduce overdependence on interest rates to tackle structurally driven inflation.
Unmasking Hidden Inflation in Informal Markets
India’s CPI relies heavily on prices from informal markets, where issues like quality reduction, shrinkflation, and product substitution are common. These practices often cause inflation to be underreported.
Following recommendations from the Organisation for Economic Co-operation and Development (OECD), India should adopt hedonic pricing methods and digital price tracking to account for quality changes. Using GST data, e-commerce prices, and scanner data would improve accuracy and ensure CPI reflects real changes in purchasing power, not just stable price tags.
Reducing Seasonal Volatility Through Structural Reforms
Seasonal swings in agricultural prices still cause sharp month-to-month fluctuations in CPI, making policy decisions more difficult.
The Dalwai Committee has stressed the need for investment in cold storage, food processing, post-harvest infrastructure, and better market integration through platforms like e-NAM.
These reforms would reduce wastage, improve supply chains, stabilise prices, and make CPI a more dependable indicator for managing the economy.
To remain relevant in a changing economy, India’s CPI needs structural reforms that reflect modern consumption patterns, local price realities, and supply-side challenges—so that inflation control supports both price stability and people’s real living conditions.
Conclusion
Although CPI is India’s official measure of retail inflation, it has been based on 2012 consumption patterns for a long time. Because of this, it has struggled to fully reflect how people’s spending has changed, especially the growing importance of services, urban living costs, and modern lifestyles.
The ongoing revision of the CPI base year to 2024, using the latest Household Consumption Expenditure Survey, is an important improvement. It will update item coverage, weights, and spending patterns, making inflation data more realistic and relevant.
If this revision is combined with better state- and city-level data and greater use of core inflation indicators, it will help the Reserve Bank of India make monetary policy more effective.
Overall, a regularly updated CPI will give a clearer picture of the real cost of living, helping policymakers respond better to the needs of people in a fast-changing Indian economy.
