​Moving on: On India’s Consumer Price Index and a new base year

The retail inflation figure for December 2025 is the final instalment of the current series of the Consumer Price Index (CPI), with a base year of 2012, before it is updated to a new base year and with new weightages. The CPI data this year have been particularly useful in highlighting the problems with relying on a dataset that has not been updated in more than a decade. The inflation figure for December 2025 stood at 1.33%. The fact that it was a three-month high is merely a statistical curiosity since it was also the third lowest since the current series began. Overall, in the April-December 2025 period, inflation has averaged 1.7%, substantially lower than the 4.9% average in the same period of 2024. But it does not feel that way. Anecdotal evidence and hard data show that the inflation that people are really experiencing is far higher than what the official data show. For example, the government’s own first advance estimates for GDP growth this year show that it expects private consumption to grow slower than it did last year. If inflation had indeed eased to the degree that the official data suggest, surely consumption should have picked up. According to its latest edition of the Reserve Bank of India’s inflation expectations survey from December, households perceived inflation to be 6.6% — a far cry from the official 1.33% — and felt that it would accelerate to 7.6% in three months and to 8% in a year. The feeling clearly is that not only are prices rising, but they are rising at a faster rate. Failing to capture this is where the official data let policymakers down.

The most basic issue with any inflation data is that a single figure is expected to capture the variety of price changes that take place across the country. The national inflation number aggregates price levels and movements from districts in Kashmir to villages in Kerala and everywhere in between, for both urban and rural. Naturally it will lose nuances in the process. Further, while this is the natural peril of computing national statistics for a diverse country such as India, the outdated nature of the CPI makes matters significantly worse. The weightages of the various sub-sectors in the index were based on consumption patterns in 2012. People consume very differently now, especially because of various central and State subsidies being offered. Thankfully, on February 12, the government will release the January inflation data based on the new series of the CPI. This series will see the base year updated to 2024, and will incorporate new weights based on the Household Consumption Expenditure Survey 2023-24. It is an update sorely needed.