The Consumer Price Index captures this reality by tracking the prices of goods and services that households regularly consume, turning everyday experiences into an official measure of inflation
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Inflation, one of the most closely watched macroeconomic indicators, is something, most people feel in daily life, through routine household expenses. The Consumer Price Index (CPI) captures this reality by tracking the prices of goods and services that households regularly consume, turning everyday experiences into an official measure of inflation. For the common man, the CPI is like a quiet mirror of daily life capturing, inter alia, the changing cost of basic needs like food on the plate, rent over the head, and fuel for the journey to work. Though it appears as a simple number, it speaks for households, guiding income and social security adjustments so that life’s essentials remain within reach. CPI-based inflation is also the primary indicator for the Reserve Bank of India for guiding decisions like interest rates and inflation control. Therefore, when the CPI reflects reality, policies respond better to what people are truly experiencing.
Inflation isn’t just about prices going up, it’s about how these price changes affect household budgets. That’s why making sure the index reflects people’s current consumption patterns is just as important as tracking the prices themselves. This is the context in which India’s ongoing CPI base updation from the year 2012 to 2024 must be seen. Since the last base revision, the economy has changed significantly, urbanization has grown, services have expanded, digital platforms have changed buying habits, and household spending has diversified.
The CPI 2024 series has, therefore, been updated using the latest Household Consumption Expenditure Survey of 2023-24. As people’s preferences and expenses changed over time, the importance (weightage) given to different goods and services in the CPI has also been adjusted. Items on which households now spend more have been given greater weight, while those that account for a smaller share of spending have been given less weight. This ensures that the CPI measures price changes that really affect household budgets. The consumption basket has also been updated to reflect emerging trends, like growing spending on services, driven by rising incomes and changing lifestyles.
Updating the way CPI is calculated is just as important as updating what it measures. The revised CPI is more closely aligned with international standards while still retaining features specific to India. This makes it easier to compare India’s inflation with other countries. From the perspective of households, this matters because it helps policymakers understand how price changes in India fit into the global picture, without losing sight of what affects people’s daily lives.
Data collection for the CPI has been upgraded to keep pace with how people shop and spend. While traditional market surveys still track prices, particularly of food and other essentials, the 2024 framework has introduced capturing of online prices for items like telecom services, airfares, and certain other services.
The adoption of computer-assisted price collection in the new series has reduced manual errors and allowed real-time checks, improving both the quality and timeliness of price data. Quality and timeliness of CPI matter because it shapes decisions that touch everyday life, like how costly loans are, how much savings earn, and how rising prices influence household budgets.
In the new base year, the CPI draws more on official data from government sources, railfare, postal charges, fuel prices, and items sold through public distribution systems. This means these numbers are captured with greater precision by mitigating the chances of errors and biases that can occur in market surveys. This integration of survey data, administrative records and digital price sources represents a marked improvement over earlier practices and provides a more reliable picture of how prices are changing.
The massive institutional effort behind a base revision exercise of this scale is also worth noting. It involves coordination across field offices, statistical divisions and national and international expert bodies. The process involves extensive scrutiny of methodology, testing of alternatives and consultation with economists and domain specialists. The Ministry of Statistics and Programme Implementation (MoSPI) has engaged with expert groups, international organizations and stakeholders to ensure that changes are transparent, easy to understand and methodologically sound.
Even with updates to the basket, weights, and data sources, the CPI keeps its core purpose, capturing how prices change from a household’s point of view. This continuity matters because it lets us compare prices over time. In other words, the index is being improved without losing the connection to everyday life, so it remains a reliable guide for policymakers.
Saurabh Garg
(The author is Secretary, Ministry of Statistics and Programme Implementation. Views are personal)