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India has taken a big step in how it measures inflation by introducing a new Consumer Price Index (CPI) series that better reflects today’s economy and the way people spend money. This change is important not just for economists, but for every citizen, because CPI is the main measure used to understand inflation which refers to the rise in prices that affects household budgets, savings and decisions by the Reserve Bank of India (RBI).
At the heart of this revision is a change in the base year, the reference point used to calculate price changes. The old CPI used 2012 as its base, but the new series updates this to 2024, drawing on the latest Household Consumption Expenditure Survey which captures real spending patterns of Indian households. Updating the base year is essential because what families buy and how they spend has changed dramatically over the past decade.
One of the most talked-about modifications in the new CPI is the reduced weight given to food and beverages. Food items used to make up nearly half of the CPI basket, making inflation numbers highly sensitive to price swings in vegetables or staples. Under the new series, the food share falls to around 36.7%, a reflection of rising incomes and a shift in spending towards non-food items such as housing, services and personal care. Reducing the heavy influence of food prices should make inflation figures less volatile and more stable.
At the same time, the weight of housing and related utilities has risen sharply. Housing now accounts for a much larger share of the index, largely due to increased spending on rent and household utilities. Better measurement of housing costs, including rents in both rural and urban areas, means that this basic expense will be more accurately reflected in headline inflation going forward.
The new CPI also expands the number of items tracked, bringing in modern goods and services that were absent in the old basket. Outdated items like CDs or horse-cart fares have been replaced with products and services that matter to today’s consumers, from headphones and Bluetooth devices to e-commerce purchases, airfares and OTT subscriptions. The CPI now covers 358 items across 12 divisions, ensuring a broader and more representative measure of the cost of living.
Importantly, data collection has widened to include more towns and cities, as well as prices from online markets, making the index more reflective of real market behaviour. This modernization is a welcome move, ensuring that the CPI mirrors both rural and urban consumption patterns.
Early results from the revised CPI show retail inflation in January 2026 at 2.75%, a figure now calculated under the new framework. While this number sits comfortably within the RBI’s target range of 2–6% and is seen as a positive sign, analysts caution that direct comparisons with inflation numbers from the old series are not straightforward because of the change in methodology.
The implications of this revision are broad. A more accurate inflation measure helps the RBI in setting interest rates and shaping monetary policy that is better aligned with real economic conditions. It also gives households, investors and policymakers clearer insight into price trends and cost-of-living changes.
In simple terms, refreshing the CPI was long overdue. India’s economy, consumption patterns and lifestyles have evolved, and now its inflation measure has caught up. This step promises to deliver more reliable data and better policy decisions, ultimately benefiting the entire nation.
By:
Siddharth Roy
Civil Engineer, Writer and Columnist
These pieces are being published as they have been received – they have not been edited/fact-checked by ThePrint.