The Consumer Price Index (CPI) is a key measure of inflation that tracks the average change in retail prices paid by consumers for a fixed basket of goods and services over time. It reflects the cost of living for various segments of the population and is crucial for monetary policy decisions, especially for the Reserve Bank of India (RBI), which uses CPI inflation as the anchor for its inflation targeting framework.
New Base Year
- The Ministry of Statistics and Programme Implementation (MoSPI) has released a new India Consumer Price Index (CPI) series with 2024 as the base year.
- Reference Period and Base Year Selection:The latest Household Consumption Expenditure Survey (HCES) 2023-24 is used for updating item basket and weights of CPI 2024 series.
- For any price index to be robust and analytically sound, the price reference period should be as close as possible to the weight reference period. In CPI 2024, expenditure weights are derived from HCES 2023–24, while base-period prices were collected during January 2024 to December 2024. Accordingly, 2024 has been selected as the base year, ensuring close alignment between the weight reference period and the price reference period, thereby improving internal consistency and representativeness.
- Revision of Item Basket and Coverage: At the all-India level, the number of weighted items has increased from 299 to 358 in CPI 2024.Within this:
- Goods items are increased from 259 to 308
- Services items are increased from 40 to 50
- This expansion strengthens the representation of the services sector, which has assumed greater importance in household expenditure over time.
- Key enhancements: First-time inclusion of rural house rent for improving coverage of rural housing consumption
- Strengthened representation of modern consumption items such as online media services and fuels (CNG/PNG)
- Improved coverage of data available on digital and administrative sources, including telephone charges, rail fare, air fare, fuel, postal charges and online media and streaming services (OTT subscriptions).
- Adoption of International COICOP – 2018 Framework
- The CPI 2024 series adopts the Classification of Individual Consumption According to Purpose (COICOP) 2018, replacing the earlier structure comprising six broad groups. This is the latest classification system developed by United Nations Statistics Division.
- Under the revised framework, expenditure is classified into 12 divisions at the first level, 43 groups, 92 classes, 162 subclasses enabling and 358 items at last level of hierarchy which enables:
- Classification of items according to its usage
- Ensures global comparability of India’s CPI
- Enables more granular dissemination of indices and inflation rates
- Revised Weights and Weighing Diagram
- The revised weights reflect updated household expenditure patterns as captured in HCES 2023–24. Share of Food & Beverages has declined in the new series.However, it continues to remain the largest component of the CPI basket.
- Housing Index Compilation
- In the revised CPI series, the Housing index is compiled using a weighted average of three constituent groups, namely “actual rental payments for housing”, “maintenance, repair and security of the dwelling”, and “water supply and other miscellaneous services” relating to the dwelling. Housing inflation is thereafter computed on a year-on-year basis based on the resulting composite Housing index.
Note:A diagrammatic presentation of the revised weighing structure, showing division-wise shares for CPI 2012 (Base 2012=100) and CPI 2024 (Base 2024=100), is provided to illustrate changes in relative importance across major consumption groups. The revised weighing diagram highlights:
- Declining food share in household expenditure
- Importance of housing, services, and transport-related items
- Better alignment with current consumption behaviour
The Consumer Price Index is a vital tool for measuring retail inflation and understanding its impact on households. As the primary gauge for monetary policy and cost-of-living adjustments, CPI plays a central role in maintaining economic stability, protecting purchasing power, and guiding decisions across government, business, and society.
FAQs
Q1. What is the Consumer Price Index (CPI)?
CPI measures the average change in the prices of a basket of goods and services consumed by households over time.
Q2. Who publishes CPI in India?
The National Statistical Office (NSO), Ministry of Statistics and Programme Implementation (MoSPI) publishes CPI for Rural, Urban, and Combined categories.
Q3. What is the base year for CPI in India?
The current base year for CPI (Rural/Urban/Combined) is 2024, and for CPI-IW, the base year is 2016.
Q4. What are the major components of CPI?
CPI includes Food & Beverages, Housing, Fuel & Light, Clothing & Footwear, Pan/Tobacco/Intoxicants, and Miscellaneous categories.
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