What is the story about?
India’s overhaul of its Consumer Price Index (CPI) could result in a marginal rise of 20–30 basis points in headline inflation, according to a report by SBI Ecowrap, highlighting how changing consumption patterns are reshaping the country’s inflation dynamics.
The assessment comes after India revised the CPI base year to 2023–24 from 2011–12, a long-awaited update aimed at better capturing evolving household spending behaviour and aligning the index with international statistical practices.
According to the SBI report, applying the new expenditure weights to the existing price indices leads to a modest increase of about 20–30 bps in overall CPI inflation. However, the impact is not uniform. In periods when food inflation is elevated, headline inflation under the new series could actually be 20–30 bps lower than under the old methodology.
The mixed impact stems from a significant rebalancing of CPI weights. Under the earlier 2012 series, food and beverages accounted for 45.86 per cent of the CPI basket. In the new 2024 series, this has been reduced sharply to 36.75 per cent, reflecting the declining share of food in household budgets as incomes rise.
In contrast, categories associated with urbanisation, mobility, and services have gained prominence. The combined weight of housing, water, electricity, gas, and other fuels has increased from 16.91 to 17.66, while transport, information, and communication have seen a sharp jump from 8.59 to 12.41. Health-related expenses have edged up from 5.89 to 6.10, and personal care, social protection, and miscellaneous services from 3.89 to 5.04.
“These changes reflect evolving consumption patterns and are expected to improve the accuracy of inflation measurement going forward,” the report said.
From an international perspective, the revision brings India’s CPI structure closer to that of other large economies, where food typically carries a lower weight and services account for a larger share of household spending. This has important implications for how global investors, central banks, and rating agencies interpret Indian inflation data.
For monetary policy, the revised CPI may make headline inflation less volatile to food price shocks but more sensitive to movements in fuel, transport, housing, and services costs areas closely linked to global energy prices and domestic demand conditions.
While the immediate statistical impact appears limited, economists say the new CPI series could subtly alter inflation narratives over time, particularly during episodes of food-price spikes or global energy shocks. For now, the SBI report suggests the base-year revision is unlikely to materially change India’s inflation trajectory, but it does mark a structural shift in how price pressures are measured in the world’s fastest-growing major economy.
The assessment comes after India revised the CPI base year to 2023–24 from 2011–12, a long-awaited update aimed at better capturing evolving household spending behaviour and aligning the index with international statistical practices.
According to the SBI report, applying the new expenditure weights to the existing price indices leads to a modest increase of about 20–30 bps in overall CPI inflation. However, the impact is not uniform. In periods when food inflation is elevated, headline inflation under the new series could actually be 20–30 bps lower than under the old methodology.
The mixed impact stems from a significant rebalancing of CPI weights. Under the earlier 2012 series, food and beverages accounted for 45.86 per cent of the CPI basket. In the new 2024 series, this has been reduced sharply to 36.75 per cent, reflecting the declining share of food in household budgets as incomes rise.
In contrast, categories associated with urbanisation, mobility, and services have gained prominence. The combined weight of housing, water, electricity, gas, and other fuels has increased from 16.91 to 17.66, while transport, information, and communication have seen a sharp jump from 8.59 to 12.41. Health-related expenses have edged up from 5.89 to 6.10, and personal care, social protection, and miscellaneous services from 3.89 to 5.04.
“These changes reflect evolving consumption patterns and are expected to improve the accuracy of inflation measurement going forward,” the report said.
From an international perspective, the revision brings India’s CPI structure closer to that of other large economies, where food typically carries a lower weight and services account for a larger share of household spending. This has important implications for how global investors, central banks, and rating agencies interpret Indian inflation data.
For monetary policy, the revised CPI may make headline inflation less volatile to food price shocks but more sensitive to movements in fuel, transport, housing, and services costs areas closely linked to global energy prices and domestic demand conditions.
While the immediate statistical impact appears limited, economists say the new CPI series could subtly alter inflation narratives over time, particularly during episodes of food-price spikes or global energy shocks. For now, the SBI report suggests the base-year revision is unlikely to materially change India’s inflation trajectory, but it does mark a structural shift in how price pressures are measured in the world’s fastest-growing major economy.
