A new and comprehensive measure of India's retail inflation takes shape

India's new CPI series reflects changing consumption patterns, digital services and better data, marking a major step forward in measuring inflation accurately

The Ministry of Statistics and Programme Implementation (Mospi) deserves congratulations for releasing the updated Consumer Price Index (CPI) series with a weight base year of 2023-24 and price base of 2024. The headline inflation rate stands at 2.75 per cent — 2.73 per cent for rural areas and 2.77 per cent for urban.

 

I had the privilege of guiding this revision exercise as chair of the expert group. Over nearly three years, the group — comprising eminent academics, representatives from central ministries and state governments, and supported by the dedicated Price Statistics Division of Mospi — worked diligently to produce a robust and policy-relevant inflation metric that reflects the lived experience of Indian households.

 

At the outset, the mandate was clear: The existing series, over 12 years old, needed urgent revision and modernisation. An immediate concern from major users was the presence of outdated items in the consumption basket, such as tape recorders and VCD players, which no longer represent consumer behaviour.

 

A key challenge early in the process was the availability of data from the Household Consumer Expenditure Survey (HCES), then in the field. Memories of the dropped 2016-17 round created apprehension about whether reliable data would emerge this time. Despite this uncertainty, the expert group recommended initiating a market survey to identify key markets, popular products, and their specifications to support regular monthly price collection. The director general of the National Sample Survey Organisation assured the group about the quality of the ongoing HCES 2023-24 data collection, providing confidence to proceed.

 

Another major issue concerned the treatment of food items distributed free of cost under the Public Distribution System (PDS). According to the International Monetary Fund’s (IMF’s) CPI manual, the index should reflect prices actually paid by consumers. Many experts agreed with this principle. Others, however, argued that since free food distribution affects the inflation experienced by a large population, it should not be fully excluded. After extensive consultations — including a discussion paper issued by the ministry — the expert group recommended adhering to the principle that CPI should be based solely on prices paid by consumers, while encouraging the development of a separate index that incorporates free supplies of goods and services.

 

Rapid digitisation posed another challenge. A significant share of consumption now occurs through ecommerce platforms, whose price dynamics differ meaningfully from traditional brick-and-mortar outlets. Yet, HCES did not capture detailed information on these transactions. The expert group, therefore, recommended incorporating ecommerce outlets for price collection, even without precise weightings, by identifying popular products through surveys of physical markets. Similarly, the growing consumption of digital services — such as over-the-top (OTT) platforms and home-service aggregators like Urban Company — necessitated inclusion. Going forward, Mospi will need to work closely with the survey division to ensure future HCES rounds properly capture expenditure on digital goods and services. Bringing ecommerce companies on board to share data regularly will also be crucial for accurate CPI measurement.

 

The new CPI series benefits meaningfully from administrative and alternative data sources. The Ministry of Railways, Ministry of Petroleum and Natural Gas, Ministry of Civil Aviation, and the Central Electricity Regulatory Commission not only provided essential information for the base revision but also agreed to supply monthly price data going forward — an important step towards more comprehensive and timely index construction.

 

While several challenges were encountered, the revision exercise has successfully delivered an updated, digitally supported, and analytically stronger CPI series. Yet, significant work lies ahead. With the next base revision due in five years, Mospi must begin preparations now to ensure even greater coverage, accuracy, and responsiveness to India’s fast-evolving consumption landscape.

 

The writer is a former Mospi director-general, Centre of Data for Economic Decision-Making president, and chief statistician at Pahle India Foundation