Urgent update: On the India’s Consumer Price Index

The retail inflation data for October once again underscore the fact that the update of the Consumer Price Index (CPI) cannot happen fast enough. The data show that the rate of overall inflation fell to just 0.25%, the lowest it has been since at least January 2012. On the face of it, this would be cause for celebration, but a deeper look reveals this drastic fall to be a statistical anomaly rather than an actual fall in price levels. The food and beverages category saw prices falling 3.7% in October, the largest in the history of the CPI’s current series. However, the main reason for this contraction was not so much that food prices have fallen, but because food inflation in October last year was a blistering 9.7%. This high base ensured that food inflation in October 2025 was negative, even though vegetable prices in markets have been on the rise recently. With the food and beverages category enjoying a weightage of nearly 46% in the overall CPI basket, this statistical anomaly in food inflation was responsible for pulling the entire index down. Indeed, inflation in nearly every other major sub-group — fuel and light, housing, tobacco, and the miscellaneous category — was higher this October than last. The impact of the GST rate cuts has, so far, been seen only in the clothing and footwear category — the only one apart from food to see inflation lower than last year. All of this shows just how skewed the inflation measure is. Not only is it outdated, with the base year set as 2012, but the weightages are no longer accurate and more often obscure rather than clarify. The disconnect between the CPI and reality can perhaps best be shown by the fact that people the Reserve Bank of India (RBI) had surveyed in September had said that their perceived inflation rate was 7.4% — a far cry from what the CPI reported.

The urgency behind the update is not just because of the vast gap between measured and perceived inflation. It is also because the RBI’s Monetary Policy Committee uses the CPI as its benchmark when deciding what to do with interest rates. Its next meeting is in December and it will have to decide whether to keep rates unchanged or to cut them. It will have to contend with growth data clouded by the temporary impact of the GST rate cut-related demand boost. Having to also parse through inflation data beset by statistical anomalies will only make accurate policymaking that much harder. The Ministry of Statistics and Programme Implementation has said that the new series of the CPI will be ready by the first quarter of the next financial year. The sooner it happens, the better.