India’s revised inflation gauge: Why we can look forward to superior policy outcomes

Subscribe to enjoy similar stories. India’s new consumer price index (CPI) series, released last week by the statistics ministry as part of a huge two-year long exercise to revise key macroeconomic variables, is a marked improvement over the one it has replaced. The CPI’s base year, methodology and coverage have been updated to better reflect what Indian households consume.

Its base year is now 2024, far more recent than the old series’ 2012. Its basket of items whose retail prices are tracked has been churned in line with findings of the 2023-24 Household Consumption Expenditure Survey (HCES). The weights assigned to various items represent actual spending patterns across the country far better than before.

Consider. Back in 2012, India was only a $1.83 trillion economy. By 2024, it was $3.91 trillion.

Yet, despite this more-than-doubling of our GDP and nearly 90% increase in per capita income—from $1,429 in 2012 to $2,695 in 2024–retail inflation numbers were based on an outdated basket. That this has been rectified is a relief. Not only has the number of items gone up, so has the CPI’s count of data collection points.

The most significant change in the new series is the weight of food items, which has fallen below 37% from nearly 46% earlier. With growing prosperity, as income levels rise, people spend a smaller part of their earnings on food, while spending more on other stuff—especially services like health, education and transport. The new series reflects this reality.

Inevitably, comparisons will be made between inflation numbers from the old and new series. The latter has put retail inflation at 2.75% in January, year-on-year, while the former recorded 1.33% for December. Given the revisions made, that gap tells