Context:
Retail inflation, as measured by the Consumer Price Index (CPI), dropped to 2.8% in May 2025. This is the lowest inflation rate in 75 months, last seen in February 2019. The decline was primarily led by easing food prices.
Consumer Price Index (CPI)
The Consumer Price Index (CPI) is a key economic indicator that measures changes in the average prices of a fixed basket of goods and services over time. It reflects retail inflation and directly impacts the cost of living for households.
Key Features of CPI
- Compiled by: National Statistical Office (NSO), Ministry of Statistics and Programme Implementation (MoSPI)
- Current Base Year: 2012
- Purpose: To track changes in consumer prices and measure inflation
What’s in the CPI Basket?
- Food and beverages
- Clothing and footwear
- Housing
- Fuel and light
- Miscellaneous items (education, healthcare, transport, etc.)
How CPI Works
- The basket of goods/services is fixed in terms of quantity and quality.
- CPI compares the cost of this basket in the current period with the cost in a base period.
- If prices rise, CPI increases (indicating inflation); if prices fall, CPI decreases (deflation or disinflation).
Significance of CPI in India
- Inflation Targeting: Used by the Reserve Bank of India (RBI) for monetary policy.
- Economic Planning: Guides budget decisions and real growth estimations.
- Wage Adjustments: Helps in revising salaries, pensions, and subsidies.
Types of CPI in India
- CPI (Combined) – All-India measure including both urban and rural areas.
- CPI (IW) – For Industrial Workers; used in wage negotiations and DA calculations.
- CPI (AL) – For Agricultural Labourers.
- CPI (RL) – For Rural Labourers.
