CPI Inflation: How Inflation Calculation Has Changed in India

India’s consumer inflation data has undergone an important methodological update. The Ministry of Statistics and Programme Implementation (MOSPI) has begun reporting Consumer Price Index (CPI) inflation under a new series starting from the January 2026 inflation release.

The objective is straightforward. Inflation measurement must remain aligned with how households actually consume goods and services. As spending patterns evolve, the consumption basket used to calculate CPI must also change.

This transition explains why CPI inflation for January 2026 rose to 2.75%, compared to 1.33% in December 2025. The change does not indicate a sudden price spike. Instead, it reflects the shift to a revised inflation series and updated consumption weights.

Why MOSPI Has Introduced a New CPI Series

Inflation indices are not static. Over time:

• Some products become obsolete.
• New categories emerge.
• Household expenditure priorities shift.

If the CPI basket does not reflect these changes, inflation data becomes less representative of reality.

MOSPI has therefore updated the CPI methodology to ensure that:

• The consumption basket reflects current household spending.
• Weightages align with recent expenditure patterns.
• Inflation comparison uses a more credible and recent base year.

The January 2026 inflation reading under the new series marked the beginning of this transition.

What Products Were Removed and Added

One of the most visible changes in the new CPI series is the modification of the product basket.

Products Removed

MOSPI has removed products that are no longer meaningfully consumed:

• VCR/DVD/VCD playing or hiring charges
• Radio
• Tape recorder
• Audio cassettes
• Second-hand clothing

These items were once relevant but have gradually disappeared from mainstream consumption.

Products Added

In their place, modern consumption categories have been added, including:

• Online media services
• Streaming services
• High-end dairy products
• Barley products
• Pen drives
• Hard disk drives (HDD)
• Gym equipment
• Babysitter charges

These additions reflect how urban and semi-urban consumption patterns have evolved. Services and digital subscriptions now form a regular part of household budgets.

Updating the basket ensures that CPI inflation reflects real-world spending instead of outdated categories.

Base Year Shift: From 2012 to 2024

The most structural change in the new CPI series is the shift in base year from 2012 to 2024.

The updated weights are derived from the Expenditure Survey of 2023–24, which provides a more current snapshot of how Indian households allocate spending.

Updating the base year serves two key purposes:

• It ensures that inflation is measured against a relevant benchmark.
• It improves credibility by aligning index weights with recent expenditure behaviour.

Expansion from 6 Groups to 12 Groups

Another important refinement is the expansion of CPI classification groups from 6 to 12 categories, following the COICOP 2018 (Classification of Individual Consumption According to Purpose) framework.

The 12 groups now include:

• Food & Beverages
• Paan/Tobacco
• Clothing
• Housing
• Furnishing
• Health
• Transport
• Information & Communication
• Recreation
• Education
• Restaurants
• Personal Care

This expansion allows for a more granular and transparent view of inflation components. Instead of broad aggregates, policymakers and analysts now get a more micro-level picture of price trends.

Food Weight Reduction and Rural Consumption Impact

One of the most significant changes in the new CPI series is the reduction in the weight of food.

Over time, as incomes rise, the proportion of household expenditure spent on food typically declines. Households allocate more toward services, education, healthcare, transport, and discretionary consumption.

Under the new CPI series:

• The weight of food in the inflation basket has fallen by nearly 911 basis points.

This change has several implications:

• It reduces the overall volatility of CPI inflation, since food prices are typically more volatile.
• It narrows the rural-urban inflation gap, as food weight differences previously contributed to divergence.
• It better reflects evolving consumption patterns in both rural and urban India.

The new CPI also increases the relative weight of rural consumption in the overall calculation. This aligns with recent trends where rural demand has been a meaningful driver of FMCG and essential goods consumption.

Will the New Methodology Push Inflation Higher?

A common concern is whether reducing the food weight could mechanically push inflation higher.

The answer is not straightforward.

While food weight has declined:

• The weight of gold and silver in the personal consumption basket has also been reduced.

In the current price environment:

• Food inflation could exert upward pressure.
• Lower weightage to precious metals could exert downward pressure.

It is important to remember that recent CPI readings in the past seven months were influenced by food deflation and favourable base effects. Under the revised series, inflation readings may appear higher compared to those recent months.

However, even after incorporating the new methodology, both MOSPI and the Reserve Bank of India (RBI) remain confident that inflation will remain comfortably below India’s 4% median inflation target.

The methodological update does not alter the inflation targeting framework. It improves measurement accuracy.

What This Means for Policy and Investors

The new CPI series represents a structural improvement in inflation measurement.

It suggests:

• Better representation of evolving consumption habits.
• Reduced distortion from outdated product categories.
• More stable inflation trends due to lower food weight volatility.

For policymakers, it provides clearer insight into core inflation drivers.
For investors, it improves transparency in understanding inflation dynamics.

Importantly, the change does not signal a regime shift in inflation management. It signals a refinement in measurement.

Key Takeaways

• MOSPI has introduced a new CPI series starting January 2026.
• CPI inflation for Jan-26 rose to 2.75% from 1.33% in Dec-25 largely due to methodology changes.
• The base year has shifted from 2012 to 2024 using the Expenditure Survey 2023–24.
• Food weight in the CPI basket has reduced by nearly 911 basis points.
• The number of CPI groups has increased from 6 to 12 under COICOP 2018 classification.
• Despite changes, inflation is expected to remain below the RBI’s 4% median target.

Disclaimer: This article is for general information and educational purposes only. It does not constitute financial, investment, legal, or tax advice. Figures and interpretations are based on publicly stated methodology changes and may evolve with future official releases. Please consult a qualified professional before taking any financial decision.