The CPI base revision exercise measures a slice of life

Source: The post “The CPI base revision exercise measures a slice of life” has been created, based on “The CPI base revision exercise measures a slice of life” published in “The Hindu ” on  12th February 2026.

UPSC Syllabus: GS Paper-3- Indian Economy

Context: The Consumer Price Index (CPI) is India’s principal measure of retail inflation and reflects changes in the cost of living from the perspective of households. The ongoing base revision of the CPI from 2012 to 2024 seeks to align the index with evolving consumption patterns, structural changes in the economy, and improved statistical methodologies.

Need for CPI Base Revision

1. The structure of the Indian economy has changed significantly since 2012, with higher urbanisation, expansion of the services sector, and digitalisation of consumption.
2. Household expenditure patterns have diversified due to rising incomes and lifestyle changes.
3. Inflation measurement must reflect current consumption behaviour to remain relevant and credible.
4. Without periodic revision, the index risks misrepresenting the actual inflation experienced by households.

Key Features of the CPI 2024 Series

1. Updated Consumption Basket and Weights

1. The new CPI series is based on the Household Consumption Expenditure Survey (HCES) 2023–24.
2. Items that now account for a larger share of household expenditure have been assigned greater weight.
3. Goods and services with a reduced spending share have been given a lower weight.
4. The basket reflects increased spending on services and emerging consumption trends.

2. Improved Methodology

1. The revised CPI is aligned more closely with international statistical standards while retaining India-specific features.
2. The methodological framework has undergone scrutiny, expert consultation, and testing of alternatives. The revision ensures comparability of inflation across countries.

3. Enhanced Data Collection Mechanisms

1. The new series incorporates online price data for services such as telecom and airfares.
2. Computer-assisted price collection has been introduced to reduce manual errors and enable real-time validation.
3. The CPI now draws more extensively on administrative data sources such as rail fares, postal charges, fuel prices, and Public Distribution System prices.
4. The integration of survey data, administrative records, and digital sources improves reliability and timeliness.

Significance of the Base Revision

1. Better Reflection of Cost of Living: The revised CPI more accurately captures the inflation actually experienced by households. It ensures that price changes in essential goods and services are represented according to their real importance in household budgets.
2. Improved Monetary Policy Transmission: CPI-based inflation is the primary anchor for the Reserve Bank of India’s monetary policy decisions. A more accurate index enables better calibration of interest rates and inflation-targeting measures.
3. Impact on Income and Social Security Adjustments: CPI is used to adjust wages, dearness allowance, pensions, and social security benefits. A realistic index protects purchasing power and ensures fairness in compensation adjustments.
4. Greater Statistical Credibility: Alignment with global standards enhances India’s credibility in international economic comparisons. Improved transparency and methodological robustness strengthen trust in official statistics.

Institutional and Administrative Effort

1. The base revision exercise involves coordination across statistical agencies, field offices, and expert bodies.
2. The Ministry of Statistics and Programme Implementation (MoSPI) has engaged with national and international experts to ensure methodological soundness.
3. The process ensures continuity with the previous series while incorporating necessary improvements.

Conclusion: The CPI base revision from 2012 to 2024 represents more than a technical update; it is an essential recalibration of how inflation is measured in a changing economy. By updating the consumption basket, refining methodology, and modernising data collection, the revised CPI strengthens its role as a reliable indicator of the cost of living and a critical guide for monetary policy, income adjustments, and economic governance.

Question: Discuss the significance of the CPI base year revision from 2012 to 2024 and its implications for inflation measurement and policy formulation.

Source: The Hindu