Explained: How India Tracks Inflation Using CPI Basket

The Consumer Price Index (CPI), one of the most widely used gauges of inflation by policymakers, gets a revamp today. The new CPI series will be rebased to 2023-24 from 2011-12. The series will also see significant changes in weighting, including a reduction in the volatile food component and a higher share for housing and services.

CPI data is released every month by the Ministry of Statistics and Programme Implementation (MoSPI) and tracks the rate of change in the index, known as the retail inflation rate. When the CPI inflation print rises, it means individuals are spending more now compared to what they were spending a month ago.

It is important to revise the base year of key indicators every five to six years to better reflect changes in economic conditions; however, India’s key macroeconomic indicators are being rebased after more than a decade.

Likewise, when CPI falls, it means prices of the same components in the basket have declined. In recent times, India’s CPI inflation has fallen to decade lows, owing to the deflationary trend in food prices, which account for nearly 40% of the basket.

With consumption patterns shifting, new weightings have been assigned to services, including transport, digital subscriptions, and over-the-top (OTT) platforms, to provide a more accurate picture of expenditure and inflation.

Is CPI the Only Measure of Inflation?

Inflation can be measured through other indices as well. Apart from retail inflation, policymakers track wholesale prices through the Wholesale Price Index (WPI). The CPI-IW tracks price changes among industrial workers and is mainly used to calculate dearness allowance payouts in the organised sector. The CPI-AL and CPI-RL track price trends for agricultural labourers and rural labourers, respectively.

Why Is CPI Important?

The CPI is the preferred gauge of inflation for the Reserve Bank of India’s Monetary Policy Committee (MPC) to achieve its inflation-targeting mandate. India’s inflation target is set at 4%, with a tolerance band of +/- 2%. The inflation target revision is due in March, with reports suggesting that the monetary regulator is likely to retain the 4% target.

Moreover, the Public Distribution System (PDS), a crucial food security programme, is linked to CPI data. Ministries can track prices of subsidised food grains. Policymakers have suggested that free items would be treated as having a zero price so that their impact, including the downward pressure when items become free, is captured in inflation estimates.

How Is CPI Computed?

To track changes in prices, every component in the CPI basket is anchored to a base year value of 100. India’s statistical authorities then record market-level data for each product every month across different parts of the country to derive current index values. The compiled numbers are calculated using the different weightings of each component to arrive at the monthly CPI figure.

Who Collects the Data?

The National Statistical Office (NSO) under MoSPI collects prices for each item in the basket through personal visits to village markets and urban areas, covering over 1,000 villages and towns. Staff record prices from selected markets and outlets on a weekly basis. As per reports, with the rollout of the new series, the data collection methodology has also been updated. MoSPI has begun collecting prices from e-commerce and digital platforms, including Amazon and Swiggy, across 12 cities with populations above 2.5 million.

Is Inflation the Same for Everyone?

The headline inflation rate reflects broader price trends across the economy rather than the pace of price rise experienced by every individual. A more accurate reflection of lived expenses is available through state- and union territory-wise CPI data released by the NSO.

For instance, in December 2025, India’s retail inflation was 1.33%. However, inflation in Kerala stood at 9.49%, while in some states the pace of price rise was 1.25% lower than a year ago.

The new series has expanded coverage to 1,465 rural markets from 1,181 earlier, while urban coverage has increased to 1,395 markets from 1,114.