All about the Consumer Price Index: How India tracks retail inflation

CPI tracks retail price changes across India; January 2026 inflation data shifts to a new 2024 base year reflecting updated spending patterns

The Consumer Price Index (CPI) is a critical economic indicator that tracks how prices of a fixed basket of everyday goods and services like food, rent, transport, healthcare, education and more, are changing over time for households in India.  

The proportional change in this index compared to the same month a year ago, is what is popularly known as the retail inflation rate. 

When the CPI rises year-on-year (or even month-on-month), it means you have to spend more to maintain the same lifestyle than you had to do earlier. When the index is lower than earlier, it signifies a deflationary situation, as the overall prices for the same basket of items have declined. 

What is headline inflation? 

The “headline” CPI rate that you hear about every month is the year-on-year change in the CPI value, aka the pace of inflation. The CPI is compiled separately for rural and urban areas, and then combined into a single all-India inflation number for each month. 

Are there any other inflation gauges in India? 

Yes. Apart from the CPI, which captures prices at the retail level, India also tracks wholesale prices through the Wholesale Price Index (WPI). There are a few other older, specialised indices tracking price rise. For instance, the CPI-IW tracks price trends faced by industrial workers and is mainly used to calculate dearness allowance payouts in organised industry. The CPI-AL and CPI-RL do the same for agricultural labourers and rural labourers, respectively, and continue to be used for determining rural wages and government welfare decisions. 

How is the CPI computed? 

To track price changes, every item in the CPI basket is anchored to the base year value of 100, so that future price changes can be compared easily. India’s statistical machinery then records market-level data for each product every month across different parts of the country to arrive at their current index values. These numbers are then compiled based on different weightages assigned to each item, to arrive at the CPI value.  

These numbers can be subject to modifications based on updated data available later, but generally, the extent of such revisions has been fractional. 

Does everyone experience the same inflation? 

While India has a headline inflation rate, it is a gauge of the broader price trends across the economy rather than the pace of price rise experienced by everyone. A more accurate indicator of the lived experience of individuals can be found in the state- and union territory-wise CPI generated by the National Statistics Office, and the differences can be quite stark based on where one lives. In December 2025, for instance, while India’s retail inflation was 1.33 per cent, the pace of price rise in Kerala was 9.49 per cent. Prices in Assam, thousands of kilometres away, were actually 1.25 per cent lower than a year ago. 

What’s next? 

The all-India CPI has been updated twice and the current CPI uses 2012 as a base year. This index assigns the highest weight to food and beverages, followed by housing, fuel and light, and various services such as transport, health and education, roughly mirroring where the average Indian rupee goes based on official surveys of household consumption spending.  

The CPI-based inflation for January 2026, to be released today (February 12), switches to 2024 as a base year, and aligns the inflation gauge with how Indians’ spending patterns have change in the dozen years since the last reset, with weightages for services enhanced and food diluted.