There has been criticism that the official CPI (Consumer Price Index) inflation readings are divorced from reality. One key reason for this is the outdated base year of 2011-12, leading to a disconnect between the CPI basket and current household spending patterns. An Expert Group has now come up with detailed recommendations for an overhaul of the basket. The group has suggested much-needed updates to sources, data collection and measurement methods as well. These will lead to the CPI better reflecting the lived experience of households, and hopefully, lead to better policymaking.
The immediate impact of using the latest Household Consumption Expenditure Survey (HCES) data to revise CPI, will be a reduction in the combined weight of food items in it and increase in the services contribution. SBI Research estimates that food weights in CPI will fall from over 45 per cent to less than 37 per cent and clothing and footwear from 6.5 per cent to 6.3 per cent. Housing, water and utilities will gain weight (16.9 to 17.7 per cent), as will transport/communication (8.6 to 12.4 per cent) and recreation (1.7 to 4.9 per cent). But whether the latest HCES has accurately captured spends on health (weight up from 5.9 to 6.1 per cent) and education (weight down from 4.5 to 3.3 per cent) remains a question. Lower weight to food items is likely to reduce volatility in monthly CPI prints, while the higher services component could lead to higher inflation prints.
Several methodological changes will lead to a broader base of data. The new CPI will be based on a fresh survey to identify the most popular markets and shops today. The sample size will feature 358 items instead of 288 and price data will be compiled from 1,465 rural markets and 1,395 urban markets, in place of 1,181 and 1,114 so far. Manual collection and recording of data using pen and paper, will be replaced by tablet-assisted interviews. Classification of items will be harmonised in line with global standards. A key missing piece in the current CPI is incomplete data on house rent. Presently, rent data is only collected from urban centres. In the new series, it will be collected both from urban and rural areas. With rapid digital adoption, online platforms are now an integral part of shopping habits. The new series will collect price data not just from brick-and-mortar shops, but also online platforms. Prices of key services such as OTT streaming platforms and broadband charges will be collected for CPI.
Gold and silver have been among the most contentious components of CPI. The new series tries to standardise their price capture by defining certain standard pieces of jewellery. But it is moot whether gold and silver, which are treated more as assets than as consumption items, should even find place in CPI. Overall, the overhaul of CPI on these lines may usher in greater stability and predictability to official inflation numbers. This will aid better monetary policy making and more realistic Dearness Allowance revisions for employees.
Published on February 5, 2026