What is Consumer Price Index (CPI)?

• The Ministry of Statistics & Programme Implementation introduced a new series of its Consumer Price Index (CPI). 

• The retail inflation under the new series came in at 2.75 per cent for January.

• The January inflation was calculated under a new CPI series with the base year (2024 = 100). 

• Telangana had the highest inflation at 4.92 per cent, followed by Kerala (3.67) and Tamil Nadu (3.36).

• High inflation was in silver jewellery, tomato, coconut-copra, gold/diamond/platinum jewellery, and coconut oil.

• The top five items with low inflation in January were garlic, onion, potato, arhar, tur dal, and peas.

What is Consumer Price Index?

The Consumer Price Index (CPI) is a measure of movement of prices in the items consumed by the households. The retail inflation based on CPI which provides year on year changes in CPI is a key macro-economic indicator for measuring the health of any economy. The CPI is designed to measure the changes over time in general level of retail prices of selected goods and services that households purchase for the purpose of consumption. Across the world, CPI is considered a very well evolved indicator in terms of its concepts, definitions, methodology and usage. Inflation is calculated as the year-on-year percentage change in CPI.

The CPI for rural, urban and combined sector was introduced by the Ministry of Statistics & Programme Implementation (MoSPI) in January, 2011. The item basket and weights were determined on the basis of the 61st round of Consumer Expenditure Survey, 2004-05. 

What is the base year and why is it important?

The base year is a chosen year taken as a reference point (index=100) to compare prices over time. It is important because it helps measure how much prices have increased or decreased and keeps inflation figures relevant and easy to understand. The base year of the new CPI series is 2024=100.

Why was the base year updated?

The CPI series with base year 2024=100 has been introduced to ensure that the index remains representative of current household consumption patterns, price structures, and the evolving nature of the Indian economy. The previous CPI series with base 2012=100 served as a stable and reliable measure for more than a decade. However, during this period, significant structural changes have occurred in consumption behaviour, income levels, urbanisation, expansion of the services sector, and digitalisation. The base updation exercise has been undertaken on the basis of the latest Household Consumption Expenditure Survey (HCES) 2023–24, which provides comprehensive information on household expenditure patterns across rural and urban areas of the country. Accordingly, 2024 has been selected as the base year, ensuring close alignment between the weight reference period and the price reference period, thereby improving internal consistency and representativeness.

What are the major changes in CPI 2024 series?

• The item basket and the corresponding weights are based on Household Consumption Expenditure Survey 2023-24. 

• The exercise is being done for enhancing the coverage and representativeness of the inflation measure. The revision introduces more granular data enabling policymakers, financial institutions, businesses and citizens with precise data-driven decisions.

• Major changes in CPI 2024 includes revising item baskets and weights as per HCES 2023-24, adoption of COICOP-2018 Framework, refinement in Index compilation methodology, inclusion of alternative data sources, use of modern technology and more granular data dissemination.

• CPI 2024 series covers 1,465 rural markets and 1,395 urban markets across 434 towns. 

• The total weighted items have been increased from 299 to 358. Specifically, goods items have risen from 259 to 308, and services items from 40 to 50.

• Further, 12 online markets are also added across 12 towns having more than 25 lakh population to capture price variations of the items on the e-commerce/online platforms. 

• New Additions: Rural housing, Online media service provider/streaming services, value added dairy products, barley & its product, pen-drive & external hard disk, attendant, babysitter and exercise equipment.

• Items Removed: VCR/VCD/DVD player and hiring charges, radio, tape recorder, clothing second-hand, CD/DVD audio/video cassettes and coir/rope.

What is COICOP?

The Classification of Individual Consumption According to Purpose (COICOP) is the international classification of household expenditure developed by United Nations Statistics Division. The objective of the COICOP is to provide a framework of homogeneous categories of goods and services from the point of view of its usage by the households. Its adoption ensures that India’s CPI is comparable with CPIs worldwide.