SYLLABUS

GS-3: Indian Economy and issues relating to planning, mobilization of resources, growth, development and employment.

Context: Recently, the Ministry of Statistics and Programme Implementation (MoSPI) released CPI data with a base year of 2024.

More on the News

• January 2026 retail inflation stood at 2.75%, marking the first inflation reading under the revised methodology.
• The new series replaces the CPI with base year 2012 and reflects structural shifts in the Indian economy, such as urbanisation, digitalisation, and changing consumption patterns.
• Inflation Highlights:
• Headline CPI inflation: 2.75%
• Rural inflation: 2.73%
• Urban inflation: 2.77%
• Food inflation: ~2.13%
• Housing inflation: ~2.05%
• Inflation remained within the RBI’s 2–6% target band.
• Tomato prices rose sharply, while onion, potato, and garlic prices declined significantly. Jewellery inflation remained elevated, especially for silver.

What is CPI, and Why is the Base Year Revised?

• The CPI measures changes in prices of goods and services consumed by households and serves as a key indicator of cost-of-living inflation.
• The CPI is the Reserve Bank of India’s primary inflation gauge and plays a central role in monetary policy and interest rate decisions.
• The base year is the reference point against which price changes are measured, with its index fixed at 100.
• As household consumption patterns evolve, the base year is periodically updated to ensure the index remains representative.
• The earlier CPI series (base 2012) had become outdated due to major structural shifts such as rising incomes, urbanization, digitalization, expansion of services, and changing consumption patterns.
• The revision aligns with IMF recommendations of updating CPI baskets periodically.
• The new series is based on the Household Consumption Expenditure Survey (HCES) 2023–24, ensuring alignment between consumption weights and current price structures.
• MoSPI also aligned the weight reference period with the price reference period to minimise base-year bias.

Key Changes

• Updated Base Year: The base year has been revised from 2012 to 2024.
• The price reference period is January–December 2024, while weights are derived from HCES 2023–24.
• Expanded Consumption Basket: The total number of items increased from 299 to 358, with goods rising to 308 and services to 50.
• This reflects the growing importance of services in household consumption.
• New additions include OTT subscriptions, digital storage devices, exercise equipment, babysitters, and rural housing rent.
• Obsolete items such as VCRs, cassette players, and other outdated electronics have been removed.
• Adoption of COICOP 2018: The new CPI adopts the UN’s COICOP 2018 classification framework.
• This replaces six broad groups with a detailed hierarchy of 12 divisions, 43 groups, 92 classes, and 162 subclasses.
• This improves global comparability and enables more granular inflation tracking. Minor adaptations were made to reflect Indian consumption patterns.
• Revised Weights: Weights were updated using HCES 2023–24 data.
• The food weight declined from about 9% to around 36.75%, reflecting rising incomes and diversification of consumption.
• Housing weight increased to about 17.67%, while transport, health, and services also gained higher shares.
• The reduced food weight is expected to lower inflation volatility.
• Housing Index Revision: The housing index now includes rent, maintenance, and utilities.
• Rural housing rent has been included for the first time, improving national representativeness.

Methodological Changes

• Modernised Data Collection: Data collection has shifted to tablet-based Computer Assisted Personal Interviewing (CAPI). This enables real-time validation, geo-tagging of shops, and faster data processing.
• Wider Market Coverage: Rural market coverage has expanded to 1,465 villages, while urban coverage exceeds 1,400 markets across over 430 towns.
• Online markets have been added in 12 major cities to capture e-commerce price trends.
• Alternative Data Sources: Administrative data is used for fuel prices, rail fares, and postal charges.
• Online sources are used for airfares, telecom plans, and OTT subscriptions. This improves data accuracy and reduces field errors.
• Improved Methodology: The Long Jevons method has been replaced by a chain-based price measurement approach.
• This allows smoother handling of product replacements and quality changes.
• Centralised pricing is used for regulated items, and free items are excluded as CPI measures prices actually paid by households.

SOURCES:
The Hindu
PIB
Indian Express
New Indian Express
Economic Time