India's CPI Methodology Overhaul: New Inflation Index Based on 2024 Consumption Patterns

This analysis is based on the YouTube interview published on February 13, 2026, featuring Statistics Secretary Saurabh Garg discussing India’s new CPI series with Paul Allen and Menaka Doshi on Insight [1]. The comprehensive revision represents the first major overhaul of India’s inflation measurement methodology in over a decade, incorporating data from the Household Consumption Expenditure Survey (HCES) 2023-24.

The methodological transformation addresses longstanding concerns about India’s statistical framework. The dramatic reduction in food weight—from approximately 45.86% to 36.75%—fundamentally changes how headline inflation is calculated and interpreted by policymakers [1]. This structural adjustment directly responds to concerns raised by the International Monetary Fund regarding India’s previous CPI series’ inability to adequately capture price changes in a highly digitized economy and outdated consumption patterns [5].

The expansion of market coverage represents another significant advancement: rural markets increased from 1,181 to 1,465, while urban markets expanded from 1,114 to 1,395 [1]. This broader geographic representation ensures the CPI more accurately reflects price movements across diverse economic regions. The inclusion of e-commerce data from 12 online marketplace categories—including platforms like Amazon, Flipkart, Swiggy, Zomato, Netflix, and airline ticket services—brings India closer to OECD and IMF best practices for capturing digital economy price movements [1][6].

Chief Economic Adviser V. Anantha Nageswaran noted that “inflation may now be driven more by core components than food, making monetary policy focused on aggregate demand pressures rather than dealing with supply-induced inflation” [3]. This paradigm shift moves monetary policy orientation from reactive supply-shock management to more proactive demand-side inflation targeting.

The housing weight increase from 10.07% to 17.67% now better reflects actual expenditure patterns of Indian households as urbanization and housing costs have risen significantly since 2012 [1][4]. This adjustment acknowledges India’s economic transformation toward a more services-oriented and urbanized economy.

The expanded 12-group classification (up from 6) provides more granular sector-specific inflation data, enabling targeted policy interventions and improved fiscal planning based on more accurate inflation expectations. The revised classification better captures the complexity of modern Indian consumption.

With core inflation (excluding food and energy) now comprising approximately 58% of the CPI basket—up from 47.3% in the previous series—monetary policy decisions will be more responsive to demand-side pressures while headline inflation readings will be less susceptible to agricultural supply shocks [4]. This should create a more predictable relationship between policy rates and inflation.

The government’s announcement of a regularized base year revision schedule—CPI every 3-5 years, GDP every 5 years, and industrial output every 3-5 years—represents a commitment to maintaining statistical relevance [6]. This policy shift was emphasized by MoSPI Secretary Saurabh Garg as a means to “improve user confidence” and make the statistical system more responsive to economic change.

The new CPI series creates several opportunities for various stakeholders. For international investors and rating agencies, the methodological improvements enhance India’s statistical credibility, aligning with OECD and IMF guidelines and providing greater transparency in inflation measurement [3][4]. This enhanced credibility could support India’s global economic positioning and potentially push India past Japan as the world’s fourth-largest economy through improved GDP measurement accuracy.

For financial institutions, the more stable core inflation metrics provide better基准 for interest rate pricing. Banks and NBFCs can now reference more stable core inflation metrics, while asset managers can recalibrate bond fund strategies based on revised inflation expectations. Insurance companies can update policy pricing models with more accurate actuarial assumptions.

The inclusion of digital platforms validates the technology and digital economy sector’s economic significance, creating new data partnership opportunities for price aggregation services and data providers [1].

The 30-50 basis point upward bias expected in near-term CPI readings presents a risk of market volatility [4]. Bond yields may remain elevated due to revised inflation expectations, affecting fixed-income portfolios and borrowing costs.

The shift toward core-inflation-driven policy means that while headline inflation may appear more stable, underlying demand-side pressures could require more aggressive monetary policy responses in certain economic conditions. Policymakers must adapt to this new framework and communicate changes effectively to market participants.

The new CPI series represents a fundamental transformation in India’s inflation measurement framework. Key technical parameters show expansion from 299 to 358 items, with goods increasing from 259 to 308 and services from 40 to 50 [1]. The base year shift from 2012 to 2024 incorporates over a decade of economic transformation.

The weight redistribution reflects India’s economic evolution: Food & Beverages decreased by 9.11 percentage points, Housing increased by 7.60 percentage points, Transport rose by 2.80 percentage points, and Health increased by 1.10 percentage points [1][4]. These changes align the CPI more closely with actual household expenditure patterns.

The first release under the new series showed retail inflation at 2.75% year-on-year for January 2026, returning to the RBI’s 4% target band for the first time since August 2025 [2][3]. According to Madhavi Arora, chief economist at Emkay Global Financial Services, “We do not expect the new inflation series to materially influence policy in the near term. An extended rate pause looks likely” [3].

The 10-year benchmark yield spiked to its highest level in over a year following the RBI’s rate pause signal, reflecting market adjustments to the revised inflation expectations [4]. The new CPI series provides the RBI with more stable headline inflation readings and better alignment between policy rates and core inflation.