India’s revamped CPI basket cuts food weight to 36.75%, reflecting changing consumption patterns.
The new series expands coverage of services, including housing, transport, health and digital services.
Lower food weighting is expected to smooth inflation readings and aid RBI’s monetary policy signalling.
Revamped CPI Basket to Add More Service Items as Food Weight Is Slashed
New inflation series reflects shift toward services, aims to reduce food-price volatility in headline CPI
Summary
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India will roll out a revamped inflation basket that cuts the weighting of food in the consumer price index (CPI) to 36.75%, the first such revision in nearly a decade, a move expected to reduce volatility in headline inflation readings.
Food prices currently account for 45.86% of the CPI basket, reflecting consumption patterns from 2011–12. The revised weighting is also expected to help smooth the outlook for the Reserve Bank of India’s monetary policy decisions, as the RBI’s Monetary Policy Committee uses CPI as the primary gauge to anchor its inflation target.
The Ministry of Statistics and Programme Implementation (MoSPI) said in a report that the revamped CPI series will use 2024 as the base year, with 2025 serving as an overlapping year between the old and new series, reports said. The new CPI series is scheduled to be released on February 12.
The number of major spending groups will be expanded to 12 from six, bringing India’s inflation indicators closer in line with international standards. According to the latest consumer expenditure survey, food now accounts for 39.7% of urban household spending, compared with nearly 43% in 2011–12. In rural areas, food expenditure stands at around 47%, down from 53% a decade ago.
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“For the first time, rural house rent has been included in the CPI. Further, in both rural and urban areas, the sample size for house rent has been increased,” Saurabh Garg, Secretary at MoSPI, said.
The revised CPI will also factor in prices from e-commerce platforms, including items such as airfares, OTT subscriptions, telecom plans and select services. The updated series now covers 358 items, signalling a growing shift towards services and evolving lifestyle-related spending.
Weights for several other categories have also been increased. Transport and communication now carry a weight of 12.41%, up from 8.59% earlier; housing, water, electricity, gas and other fuels have risen to 17.66% from 16.91%; recreation, sport and culture to 4.86% from 1.68%; and health to 6.1% from 5.89%.
In December, retail inflation rose to a three-month high of 1.3%, up from 0.7% in the previous month, driven by easing food deflation and higher prices in miscellaneous items.
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