Calculating inflation involves four major processes: identifying the items for which price data are collected; classifying and weighing them, identifying markets from which to collect data; And using all of the above to create an index that is statistically correct. The new series of Consumer Price Index (CPI), which is the basis for calculating retail inflation from January 2026, has made changes to all four processes. However, it is the changes in the first two processes that are the most important and main reason for changing the chain.
According to the report of the Expert Group on the Comprehensive Update of the Consumer Price Index and the press release issued by the National Statistical Office (NSO) on February 12, the main changes are the following: The number of items has increased from 299 to 358; The weight of food is quite low and the weight of transportation is quite high; Data is now collected from 2860 markets instead of 2295, and also from 12 online markets in big cities. The base year of CPI calculation has also changed from 2012 to 2024.
Weighted items increased from 299 to 358
The previous CPI series published data for 299 items. While data could have been collected for a longer list of items (called valued items), they were combined into a list of 299 items for which weights were assigned (weighted items). The new series is collecting data for 358 weighted items. The number of goods in the CPI basket has increased from 259 to 308 and the number of services has increased from 40 to 50.
Of course, the net change is the result of both added and removed items. Some of the major additions are rural accommodation, online media service providers/streaming services, value-added dairy products, barley and its products, pen-drives and external hard disks, attendants, babysitters and exercise equipment. Items removed include VCR/VCD/DVD players and rental charges, radios, tape recorders, second-hand clothes, CD/DVD audio/video cassettes and coir/rope.
HCES 2023-24 is now the basis for weighting instead of CES 2011-12
The reason for updating the series is that consumption patterns in India have changed, as seen by the inclusion of items that are now consumed more than before or the removal of items that are now obsolete. In the previous series the items were weighted based on the Consumer Expenditure Survey (CES) of 2011-12. The new series is weighing commodities based on the Household Consumption Expenditure Survey (HCES) 2023-24.
How much has the weight of different objects changed?
The main change here is that the burden of food has reduced significantly and the burden of transportation has increased. This is in line with the largest change observed between the 2011–12 CES and the 2022–23 HCES, the first consumption expenditure survey since 2011–12 for which data was released. The latest CPI series is based on the 2023-24 HCES, which is a later version of the 2022-23 exercise. The government canceled the last consumption survey conducted in 2017-18, which, among other things, delayed the update of the CPI series.
Food and beverages is the category that has seen the biggest drop in weight between the old and new series – from 45.9% to 36.8%. Apart from food and beverages there are only two broad categories, namely, paan, tobacco and intoxicants and clothing and footwear, which have been carried forward from the old series to the new series. The previous series had six “groups” at the top of the group-wise hierarchy of classification. The new series now has 12 “divisions”. This makes one-to-one comparisons to other majors not so straightforward. Of course, even categories like food and beverages in the new and old series are not strictly comparable because they include different goods and services than before.
Why has the classification system changed?
Goods in the old series were classified based on the 1999 Classification of Personal Consumption by Purpose (COICOP), which is a UNSD classification system. However, according to the Expert Group’s report, its hierarchy, nomenclature and mapping were not fully aligned with COICOP 1999. The new series is at least conceptually aligned with the latest COICOP 2018, taking the division, group, class and subclass hierarchy from COICOP. The Expert Group’s report stated that this change was made because “the non-adoption of the COICOP classification system into the CPI framework was repeatedly highlighted as an area of concern” in consultations with the IMF, the World Bank and UNECE. According to the expert groups’ report, the only main conceptual difference with COICOP that still exists is that “paan” – betel nut – is not classified as a narcotic like COICOP 2018.
Addition of online markets and growth of markets overall
The total number of markets from which data is collected has increased from 2295 to 2860: from 1181 to 1465 in rural areas and from 1114 to 1395 in urban areas. Additionally, online price data is collected from 12 big cities: Mumbai, Delhi, Bengaluru, Hyderabad, Ahmedabad, Chennai, Kolkata, Surat, Pune, Jaipur, Lucknow and Kanpur.
Of course, these are not the only changes in the new CPI series. For example, the new series will compare the current month’s prices to the previous month’s prices, and link them back using indices; Whereas in the old series the prices were compared directly with the base year. Theoretically, this does not change the inflation print, but the new formula is expected to be more conducive to replacement and compilation efficiency. It is the changes described above that are most likely to alter the headline inflation calculations. For example, according to back series data provided by NSO, inflation in December 2025 will be 1.2% using the new weighting instead of 1.3% as per the old weighting.
The next important data revision on the cards is the release of new GDP data on February 27. Unlike the previous series where inflation (2012=100) and GDP data (2011–12) overlapped in their base years; The new series will have different bases: the CPI will have a base year of 2024 and the new GDP and Index of Industrial Production (IIP) series will have a base year of 2022-23.