India to Revamp CPI Basket: Food Weight Reduced to 36.75% in New Inflation Series
India is set to introduce a revamped Consumer Price Index (CPI) series that significantly reduces the weight of food items, a move expected to make headline inflation readings more stable and reflective of current consumption trends. Under the new framework, the share of food in the CPI basket will be cut to 36.75% from the existing 45.86%.
This structural change could help smooth inflation volatility and provide clearer signals for monetary policy, as food prices are often influenced by seasonal factors such as weather conditions and supply disruptions.
Why the CPI Basket Is Being Updated
The current CPI series is based on consumer spending patterns from 2011–12, which economists believe no longer accurately represent how Indian households spend today. Over the past decade, rising incomes, urbanisation, and greater spending on services have altered consumption behaviour.
To address this gap, the government will adopt 2024 as the new base year for CPI calculations. The year 2025 will serve as an overlap period, allowing historical inflation data to be statistically converted to the new base for continuity and comparison.
More Spending Categories for Better Price Tracking
One of the key changes in the new inflation series is the expansion of major CPI groups. The number of headline categories will increase to 12 from the current six, bringing India’s inflation measurement framework closer to global best practices.
This broader classification is expected to improve price tracking across sectors and provide policymakers with deeper insights into inflation drivers.
Food’s Shrinking Share in Household Budgets
Recent household expenditure surveys indicate that food now accounts for a smaller share of total spending compared to a decade ago:
- Urban households: Food share has declined to 39.7% from about 43% in 2011–12.
- Rural households: Food spending stands at around 47%, down from nearly 53% earlier.
The revised CPI weights aim to better capture these shifts, ensuring inflation data mirrors present-day realities.
Housing and Utilities Remain Key Inflation Drivers
The combined weight of housing, water, electricity, gas, and other fuels will be fixed at 17.66%, making it the second-largest contributor to inflation after food.
Notably, rural house rent has been included in CPI for the first time, and the sample size for tracking house rents has been expanded in both rural and urban areas. This change is expected to improve the accuracy of shelter-related inflation measurements.
Transport, Health, and Services Gain Importance
Other major components in the revised CPI basket include:
- Transport: 8.8%
- Health: 6.10%
- Clothing and footwear: 6.38%
Service-oriented categories such as restaurants and accommodation, education, and information and communication will each carry weights of around 3.5%, highlighting the economy’s gradual shift toward services.
E-commerce Prices to Be Tracked for the First Time
In a significant modernization step, the CPI will now incorporate prices from e-commerce platforms. Items such as airfares, OTT subscriptions, telecom plans, and selected online services will be monitored, reflecting the growing role of digital consumption in household spending.
Recent Inflation Trends
India’s headline inflation rose in December to 1.33% year-on-year, marking its fastest pace in three months, as the decline in food prices moderated. In November, inflation had stood at 0.71%.
The updated CPI structure is expected to offer a clearer and more balanced view of inflation trends going forward, aiding both investors and policymakers.
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