Reference Article: Editorial | The Hindu – Moving on: On India’s Consumer Price Index and a new base year
UPSC Relevance:
GS Paper III – Indian Economy (Inflation measurement, national accounts, monetary policy)
GS Paper II – Governance (Evidence-based policymaking, data quality)
December 2025 marked the final release of India’s Consumer Price Index (CPI) based on the 2012 base year. With inflation recorded at 1.33%, the data officially suggest a benign price environment. However, this figure has intensified concerns about the reliability of an index that has remained unchanged for over a decade.
What the Numbers Show
- December inflation at 1.33% was a three-month high but also among the lowest since 2012
- Average inflation during April–December 2025 stood at 1.7%, sharply lower than 4.9% in the same period of 2024
- Despite low official inflation, private consumption growth is projected to slow, contradicting expectations of higher spending
Disconnect Between Data and Lived Experience
- RBI’s December inflation expectations survey shows households perceived inflation at 6.6%
- Households expect inflation to rise to 7.6% in three months and 8% over a year
- This gap between measured and perceived inflation indicates that official CPI fails to reflect real cost-of-living pressures
Structural Problems with the CPI
- A single national inflation figure masks wide regional and rural–urban price variations
- Weightages are based on 2012 consumption patterns, which no longer reflect present realities
- Changing diets, services consumption and widespread subsidies have altered household expenditure significantly
Importance of the New CPI Series
- New CPI series to be released from January 2026 data (on February 12)
- Base year updated to 2024
- Weightages derived from the Household Consumption Expenditure Survey 2023–24
- Expected to improve accuracy of inflation measurement and strengthen monetary and fiscal policymaking
Conclusion
The 2012-based CPI has increasingly obscured rather than clarified inflation dynamics, weakening policy credibility. Updating the CPI base year and weights is essential to align official data with lived economic realities and ensure effective decision-making by the RBI and government.
Sample UPSC Mains Question
Discuss the limitations of India’s existing Consumer Price Index (CPI) framework. How will the revision of the base year and weightages improve inflation measurement and policymaking?