A new CPI base, a clearer inflation signal: Data Point

India’s inflation index has been updated to reflect better how households allocate their spending today.

Under the earlier Consumer Price Index (CPI), consumption was grouped into six broad categories, with a wide range of everyday services — such as health, education, transport, and personal care — aggregated into a single head. The revised CPI, shown in Chart 1, re-organises the basket into 12 distinct categories in accordance with the Classification of Individual Consumption According to Purpose (COICOP) 2018.

This improves the visibility of individual components of household expenditure. As a result, the weight of food has declined, while housing and services account for a larger share, in line with long-term changes in consumption patterns. The revision does not alter what households spend; it refines how that spending is measured for inflation.

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The intellectual foundation of this approach dates back more than two centuries. In 1822, Joseph Lowe developed the idea of measuring inflation in England during the Napoleonic wars, arguing that treating all prices equally was mistaken and that goods and services should be weighted according to their importance in everyday consumption. The modern Consumer Price Index continues to follow this principle: prices change, but the basket remains fixed for a given base period. The latest revision updates the basket using Household Consumption Expenditure Survey (HCES) data and aligns weights with current spending patterns. How this works in practice is illustrated in Chart 2.

What does CPI General (Combined) mean? Chart 2 shows the monthly trends of CPI General (Combined), with the base year at 2024.

When the report states that the CPI General (Combined) stood at 104.46 in January 2026, consider a simple example. Let us suppose Usha bought a fixed basket of goods in the same proportions covering all 12 CPI categories for ₹100 in January 2024. This year is treated as the base year, so CPI 2024 is set at 100. When Usha returns to the market in January 2026 and buys the same basket of goods in the same quantities, she now has to pay ₹104.46. That is why the CPI for January 2026 is shown as 104.46. In plain terms, CPI 104.46 means that the same basket of goods that cost ₹100 in the base year now costs ₹104.46. Therefore, the CPI indicates how expensive life has become compared to the base year. It reflects the price level, not how fast prices are rising.

The inflation rate explains the pace of price increases. Using the same example, an inflation rate of 2.75% compares prices in January 2026 with prices in January 2025, not with the base year. If Usha bought the same basket for about ₹101.60 in January 2025 and it now costs ₹104.46 in January 2026, the increase over one year is 2.75%. This is why inflation is reported at 2.75%. Simply put, the inflation rate shows how fast prices have risen over the past year. It does not indicate how expensive things already are; it only shows how quickly prices have gone up recently.

Chart 3 highlights the top five States (with a population above 50 lakh as per the last conducted Census in 2011) recording the highest inflation in January 2026 — Telangana, Kerala, Tamil Nadu, Rajasthan, and Karnataka.

This reflects structural differences in household spending that are captured more clearly under CPI 2024. With the revised index reducing the weight of food and raising the weight of housing and services — based on updated Household Consumption Expenditure Survey data — price pressures in non-food categories now have a greater influence on headline inflation.

In services-intensive States such as Telangana, Kerala, Tamil Nadu, and Karnataka, higher costs for housing, health, education, transport, and personal services translate more directly into higher inflation. Telangana recorded an inflation of 5% last month. The figures are followed by Kerala and Tamil Nadu, which recorded an inflation of 3.67% and 3.36%, respectively.

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Rajasthan’s inclusion among the higher-inflation States is linked to a key methodological change: CPI 2024 explicitly includes rural housing and utilities, which were not fully captured earlier, thereby correcting an understatement of non-food inflation in largely rural States. Rajasthan recorded an inflation of 3.17% in January this year.

Overall, the chart shows that under the new CPI, State-level inflation is shaped less by food price movements alone and more by differences in consumption structure, a contrast that was less visible under the earlier CPI base.

It also helps explain how the Reserve Bank of India looks at inflation. Under the new CPI, when States such as Telangana, Kerala, Tamil Nadu, Rajasthan, and Karnataka show higher inflation, it points to rising costs in services such as rent, health care, education and transport, not just short-term food price changes. This is important for the RBI because food prices often rise and fall quickly, while service prices generally remain high for longer. The CPI 2024 thus enables the RBI to judge whether price pressures are transitory or persistent, a key input for interest-rate decisions.

Chandrasekar K. is with the Indian Statistical Service. The views expressed are personal. Both the figures CPI General (Combined) and the inflation rate of January 2026, using which calculations were made, are only provisional figures

Published – March 04, 2026 05:22 pm IST