Calculating inflation involves four key processes: identifying the items for which price data is collected; classifying and weighing them, identifying the markets from which to collect data; and using all of the above to make an index which is statistically sound. The new series of the Consumer Price Index (CPI), which is the basis for calculating retail inflation from January 2026 onward, has made changes to all four processes. However, it is the changes in the first two processes that are the most important and the main reason for changing the series.
According to the report of the Expert Group Report on Comprehensive Updation of Consumer Price Index and the press release issued by the National Statistics Office (NSO) on February 12, the key changes are the following: the number of items has increased from 299 to 358; food has substantially lower weight and transport has substantially higher weight; data is now collected from 2860 markets instead of 2295, and also 12 online markets in big cities. The base year of CPI calculation has also changed from 2012 to 2024.
Weighted items increased from 299 to 358
The previous CPI series published data for 299 items. While data could be collected for a longer list of items (called priced items), they were clubbed to a list of 299 items for which weights are assigned (weighted items). The new series is collecting data for 358 weighted items. The number of goods in the CPI basket of items has increased from 259 to 308 and that of services from 40 to 50.
To be sure, the net change is the result of items being both added and removed. Some key additions are rural housing, online media service provider/streaming services, value added dairy products, barley and its products, pen-drive and external hard disk, attendant, babysitter and exercise equipment. Among the items that have been removed are VCR/VCD/DVD player and hiring charges, radio, tape recorder, second-hand clothing, CD/DVD audio/video cassettes and coir/rope.
HCES 2023-24 is the basis of weights now instead of CES 2011-12
The reason for updating the series is that the pattern of consumption in India has changed, as can be seen from the addition of items that are consumed more significantly now than earlier or deletion of items that are now near obsolete. The previous series weighted items on the basis of Consumer Expenditure Survey (CES) of 2011-12. The new series is weighting items on the basis of the Household Consumption Expenditure Survey (HCES) 2023-24.
By how much have weights of different items changed?
The key change here is that the weightage of food has decreased significantly and that of transport has increased . This is in line with the biggest change seen between the 2011-12 CES and 2022-23 HCES, the first consumption spending survey after the 2011-12 one for which data was released. The latest CPI series is based on the 2023-24 HCES, a later version of the 2022-23 exercise. The government junked a previous consumption survey conducted in 2017-18, which delayed the updation of the CPI series among other things.
Food and beverages is the category which has seen the biggest decline in its weight between the old and new series — from 45.9% to 36.8%. There are only two broad categories apart from food and beverages, namely, pan, tobacco and intoxicants and clothing and footwear, which have been carried forward from the old to the new series. At the top of the group-wise hierarchy of classification in the previous series were six “groups”. The new series has 12 “divisions” now. This makes a one-to-one comparison of other heads not so straight forward. To be sure, even categories such as food and beverages in the new and old series are not be strictly comparable because they include different goods and services than earlier.
Why has the classification system changed?
The old series classified items on the basis of the 1999 Classification of Individual Consumption According to Purpose (COICOP), which is a UNSD classification system. However, according to the expert group report, its hierarchy, nomenclature, and mapping was not completely aligned with COICOP 1999. The new series is at least conceptually aligned to the latest COICOP 2018, taking the division, group, class, and subclass hierarchy from COICOP. The change was made because “the non-adoption of the COICOP classification system in the CPI framework was repeatedly highlighted as an area of concern” in consultations with the IMF, World Bank, and UNECE, the expert group’s report says. The only main conceptual difference with COICOP that still exists, per the expert groups’ report, is that “Paan” – betel leaves – are not classified as a narcotic substance as COICOP 2018 does.
Addition of online markets and increase in markets overall
The overall number of markets from which data is collected has increased from 2295 to 2860: 1181 to 1465 in rural areas and 1114 to 1395 in urban areas. In addition, online price data is collected from 12 big cities: Mumbai, Delhi, Bengaluru, Hyderabad, Ahmedabad, Chennai, Kolkata, Surat, Pune, Jaipur, Lucknow and Kanpur.
To be sure, these are not the only changes in the new CPI series. For example, the new series will compare prices in the current month with that of the previous month, and link them back using indices; while the old series compared prices directly with the base year. Theoretically, this doesn’t make any change to the inflation print, but the new formula is expected to be more suited for replacements and compilation efficiency. It is the changes described above that are more likely to produce changes in how much headline inflation computes to. For example, as per the back series data given by NSO, inflation in December 2025 would be 1.2% using the new weights instead of 1.3% as per the old weights.
The next important data revision on cards is the release of new GDP data on February 27. Unlike the previous series where inflation (2012=100) and GDP data (2011-12) overlapped in their base years; the new series will have different bases: CPI will have 2024 as its base year and the new GDP and Index of Industrial Production (IIP) series will have its base in 2022-23.