Readers were surprised that CPI inflation for Jan-26 surged to 2.75% from 1.33% in Dec-25. This shift was more because MOSPI has shifted to a new inflation series effective Feb-26 reporting. Over time, some products move out of the consumption basket and new products enter. Accordingly, the MOSPI has removed products like VCR/DVD/VCD playing / hiring charges, radio, tape recorder, audio cassettes, and second-hand clothing; which were not being consumed. Instead, it added online media services, streaming services, high-end dairy products, barley products, pen drives, HDD, gym equipment, babysitter charges etc. These have all entered the average consumption basket now! 

Most changes to CPI inflation calculation stemmed from base year for index calculation being shifted from 2012 to 2024. That is because the new weights are based on the Expenditure Survey of 2023-24. One of the reasons to have a more recent base year is to use a credible comparison base. The other objective is to give a more granular picture of the components of the inflation basket. Towards this end, the number of groupings have been increased from 6 to 12 for a more micro picture as per the COICOP 2018. Now, the 12 groups include F&B, Paan/Tobacco, Clothing, Housing, Furnishing, Health, Transport, I&C, Recreation, Education, Restaurants, and Personal Care. 

Two other interesting changes in the New CPI are the weight of food in the CPI inflation basket and the role of rural consumption. Over the years, the share of food in the average consumption basket of an Indian household has been steadily falling. People spend less on food and more on other items. Under the new series, the weight of food comes down by nearly 911 basis points. This will not only reduce volatility in inflation, but also reduce the gap between rural and urban inflation, since the differential weight to food products was the key factor. The new CPI also raises the weightage of rural consumption in CPI calculation, which is in line with recent trends seen in FMCG demand. 

There have been concerns that the reduction in food weight would spike inflation higher. However, that may not be the case. One must remember that along with reduction of food weights, even the weight of gold and silver in the personal consumption basket has been reduced. In the current price scenario, if food will push inflation up, then gold and silver will bring inflation down. Yes, the CPI inflation will be higher than recent CPI figures seen in the last 7 months, but that was based on food deflation due to high base. Even with the higher inflation impact, the MOSPI and the RBI are confident that the inflation rate would still be well under the 4% median inflation target for India!