New consumer inflation data to bolster policy responses: CEA Nageswaran | Economy & Policy News

India’s new Consumer Price Index (CPI) series, announced on Thursday and using 2024 as the base year, captures the shift in household consumption trends over the last decade, with more spending on services while the share of food in domestic budgets has fallen, and will help fiscal and monetary policy makers formulate better responses to evolving economic conditions, Chief Economic Adviser V Anantha Nageswaran said.

In January, the All India CPI inflation rate stood at 2.75 percent on an annual basis; The rural price increase was 2.73 percent and the urban price increase was 2.77 percent. Food inflation, which remained in the negative zone until December 2025 in the old series, turned positive at 2.1 percent in the new series.

Nageswaran said reducing the weight of the normally volatile food and beverage group could make headline inflation less volatile, ceteris paribus. “In particular, the monetary policy response could focus more on aggregate demand pressures rather than dealing with supply-driven inflation and dealing with a demand-sensitive variable such as the interest rate,” he said, adding that the new series could improve the assessment of development indicators such as poverty levels and that the new series could also improve the assessment of development indicators such as poverty levels.

In an environment where inflation is now driven by the core or non-variable components of the CPI, which excludes food and energy, the CEA said the new series could help stabilize inflation expectations in households and businesses.

“If CPI volatility decreases, this means that fiscal spending volatility, such as the Dearness Allowance (DA) peg, inflation-linked bonds and others, which are linked to the CPI, may also become more stable, predictable and reliable, which could lead to better budget predictability and visibility as well as fiscal figures.” he stated.

With the housing component of the CPI now including rural rental costs and improved sampling coverage, the CPI now provides a more accurate representation of housing costs across regions. Speaking at a Statistics ministry event to mark the launch of the new CPI series, CEA said this had led to a better measurement of the rural cost of living, reducing the urban bias in the inflation forecast.

“As a result, poverty estimates become more accurate, as real consumption and real income calculations are directly tied to the CPI. Improving cost of living measurement also increases the targeting efficiency of welfare schemes, ensuring that social benefits, subsidies and social transfers are better aligned with real regional price realities,” he emphasized.

“Reflecting the Engel Act, the proportion of weights assigned to the food basket has fallen in the new series. The weighting of food and beverages has come to 36.75 percent from 45.86 percent in the 2012 CPI series… This also reflects the reallocation of certain items to other categories that are more discretionary in nature, such as restaurants and services. At a macro level, this reflects the increasing diversification of spending towards health, education, mobility and connectivity, which is what you would expect.” Nageswaran underlined that this should be seen from an economy that sees rising incomes and rising living standards. According to Engel’s law, as a person’s income increases, the proportion of income spent on food decreases.

Such rebalancing is often associated with income growth and productivity gains, he said, adding that this brings the measurement of consumption closer to the evolving structure of output and employment, where services account for an increasing share of economic activity. Moreover, the new series will help better differentiate urban and rural inflation dynamics at the state level and also at the sub-class and sub-item level, as it recognizes the increasing role of digital channels in price formation, he said.

To better capture evolving household spending patterns amid digital and services-led growth, the Ministry of Statistics and Program Implementation (MoSPI) on Thursday released the first edition of the revamped Consumer Price Index (CPI) series with a base year of 2024; This marks a major methodological revision in India’s retail inflation indicator.

The new series replaces the previous six-group classification with 12 sections to align with international standards and uses HCES 2023-24 to update the household consumption basket.

The number of weighted items in the basket increased from 299 previously to 358. In this context, the increase of goods from 259 to 308 and services from 40 to 50 points to a remarkable increase in the share of services in household consumption. Rural housing eliminates outdated items such as VCR and DVD players, radios, tape recorders, second-hand clothing while adding online media and streaming services, value-added dairy products, barley products, pen drives and exercise equipment.

Highlighting the scale of the update exercise, Saurabh Garg, Secretary, Ministry of Statistics and Program Implementation, said that this is the culmination of a two-year study. “There are about 10,000 enumerators in the field going out every week, every month to collect the data. So it’s a lot of effort on the part of the enumerators,” he said.

The Ministry plans to institutionalize the base revisions of the CPI at regular intervals. “We conducted the last household consumer expenditure survey in 2023-2024 and have scheduled the next one in 2027-2028. The international norm is that these macroeconomic indices are revised every five years and we hope to be able to follow this,” Garg said.

The CEA said that with the new data sets, including a revision of the national accounts due in a few weeks, India “may even be a step ahead of others in compiling, compiling and presenting basic macroeconomic statistics on future production and prices.”