Saurabh Garg, Secretary, Ministry of Statistics and. Programme Implementation (MoSPI) with V. Anantha Nageswaran, Chief Economic Advisor, and others during a press conference on release of Consumer Price Index (CPI) Data - Base Year: 2024, at Ambedkar International Centre, Janpath, in New Delhi on Thursday. (ANI Photo/Naveen Sharma)
Take a look at the essential concepts, terms, quotes, or phenomena every day and brush up your knowledge. Here’s your UPSC current affairs knowledge nugget on the new CPI 2024 for today.
(Relevance: Questions have been asked in Prelims and Mains on this topic. Since the government is implementing methodological changes in the calculation of key economic indicators, understanding these indicators in detail and their differences from previous ones is crucial from an exam perspective.)
The Ministry of Statistics and Programme Implementation (MoSPI) released the new Consumer Price Index (CPI) data based on the updated base year 2024, placing retail inflation in January at 2.75%.
Terming the revision of the Consumer Price Index (CPI) an “important development”, Chief Economic Advisor V Anantha Nageswaran said that inflation signals will now be “more closely matched” to prevailing economic conditions.
1. The newest CPI inflation comes after years of work by the statistics ministry to update the base year for prices of the CPI to 2024 from 2012, reconstitute the consumption basket based on the results of the 2023-24 Household Consumption Expenditure Survey (HCES), so that prices are measured as per the latest consumption patterns and not the 2011-12 survey.
2. The new CPI basket contains 358 goods and services, up from 299 in the erstwhile basket, with new goods such as airpods being added to the CPI and obsolete ones like audio cassettes being removed.
3. CPI inflation, which measures the change in consumer prices of hundreds of goods and services in a given month compared to the same month in the previous year, is the most important economic indicator in the country as it directly influences the level of interest rates set by the Reserve Bank of India (RBI).
4. The central bank has a legal mandate to target a CPI inflation rate of 4% in the medium term within a tolerance band of 2-6%. As such, if inflation is seen above 4% on a sustained basis, the RBI increases its policy repo rate to weaken demand and bring down inflation.
5. The new CPI with the changed “base year” of 2024, which means that the price index is given a value of 100 for 2024 and changes from these price levels are then calculated to arrive at inflation rates for each good or service. This new CPI has included rural house rent for the first time to improve coverage of rural housing consumption.
Source: MoSPI
6. The CPI 2024 series adopts the Classification of Individual Consumption According to Purpose (COICOP) 2018, replacing the earlier structure comprising six broad groups. These were the six broad groups—Food and beverages, Pan, tobacco and intoxicants, Clothing and footwear, Housing, Fuel and light and Miscellaneous (services such as education, health care etc.).
7. CPI 2024 uses the latest classification system developed by the United Nations Statistics Division. According to the MoSPI, “under the revised framework, expenditure is classified into 12 divisions at the first level, 43 groups, 92 classes, 162 subclasses, enabling and 358 items at the last level of hierarchy which enables:
* Classification of items according to their usage
* Ensures global comparability of India’s CPI
* Enables more granular dissemination of indices and inflation rates.”
Source: MoSPI
8. As per the new CPI series released on Thursday, India’s headline retail inflation rate stood at 2.75% in January. This is more than double the 1.33% recorded in the final month of 2025 under the old series.
9. However, making direct comparisons between inflation numbers under the old and new series would not be correct due to changes in the consumption baskets, item weights, and methodologies, although a ‘linking factor’ has been provided by the ministry to connect the old and new data series.
10. CEA Nageswaran said the Indian economy has undergone a “significant transformation” over the past decade, with consumption behaviour, market structures, and composition of household expenditure having evolved over time. These changes, he said, reflect in the new CPI inflation series, with the weight of food coming down from 45.86% to 36.75%, in line with Engel’s Law.
Named after German statistician and economist Ernst Engel, the economic theory states that as the income of a household rises, the proportion it spends on food reduces.
11. Improvement in the measurement of consumer inflation could also enhance the targeting efficiency of welfare schemes, ensuring that benefits, subsidies, and social transfers are better aligned with actual regional price realities.
12. The modernisation of CPI inflation, India’s most important macroeconomic indicator, is part of a larger overhaul of India’s official statistics by MoSPI. Later this month, the new GDP series – with 2022-23 as the base year and sweeping methodological changes – will be released on February 27. Then, in May, the revised Index of Industrial Production will be released, also with a new base year of 2022-23.
1. Inflation refers to the rate at which the general price level for goods and services increases over a period of time, causing a decrease in purchasing power of money or real income. In other words, as inflation rises, each unit of currency can buy fewer goods and services than before. There are different methods for measuring inflation such as Consumer Price Index (CPI), Wholesale Price Index (WPI), GDP deflator, and more, with each focusing on a specific aspect of price changes.
2. Consumer Price Index (CPI): Inflation relates to consumer prices of all goods purchased by the consumer, which may be either domestically produced or imported.
The formula for calculating inflation is ((CPI x+1 – CPI x )/CPI x ))*100.
CPI x = the value of the CPI in the initial/base year x.
3. Wholesale Price Index (WPI): While the CPI measures the price changes in the retail market (maximum retail prices{MRP}, inclusive of taxes), the WPI measures the price changes in the wholesale market. Say, for example, the price of a commodity (such as onions) would vary depending on the fact that it is bought from the wholesale market or retail market.
4. GDP deflator: Another measure of inflation relates to the rate at which the prices of all domestically produced goods and services change. The price index used in this case is the GDP deflator. The GDP deflator (also called implicit price deflator) is the ratio of the value of goods and services an economy produces in a particular year at current prices to that at prices prevailing during any other reference (base) year.
GDP Deflator = ((Nominal GDP/real GDP))*100.
(1) Consider the following statements:
1. The new CPI has a base year of 2024.
2. The new series includes six broad groups in the structure.
3. Rural house rent is included for the first time in the new CPI.
Which of the statements given above is/are correct?
(a) 1 and 2 only
(b) 2 and 3 only
(c) 1 and 3 only
(d) 1, 2 and 3
(2) Consider the following statements: (UPSC CSE 2020)
1. The weightage of food in the Consumer Price Index (CPI) is higher than that in Wholesale Price Index (WPI).
2. The WPI does not capture changes in the prices of services, which CPI does.
3. The Reserve Bank of India has now adopted WPI as its key measure of inflation and to decide on changing the key policy rates.
Which of the statements given above is/are correct?
(a) 1 and 2 only
(b) 2 only
(c) 3 only
(d) 1, 2 and 3
| Answer key |
| 1. (c) 2. (a) |
(Sources: India’s January CPI inflation at 2.75% under new inflation series, How inflation affects cost of living, New CPI improves information basis for monetary, fiscal policy: CEA Nageswaran, MoSPI)
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