New CPI Weights May Lift Headline Inflation by 20–30 bps on Average: SBI Research

Applying the proposed new consumer price index (CPI) weights to unchanged price indices would raise headline inflation by a modest 20–30 basis points on average, but lower it by a similar margin during periods of elevated food inflation, SBI Research said in a report today.

SBI Research’s said India’s forthcoming CPI series could deliver a more stable and policy-relevant inflation signal, reducing the volatility that has long complicated monetary policy assessment.

Earlier today, the Ministry of Statistics and Programme Implementation (MoSPI) released the recommendations by an expert group constituted to revise the CPI base year to 2024. The overhaul seeks to reflect changing consumption behaviour, a growing services footprint and the increasing role of digital commerce in household spending.

The most significant structural change is a sharp cut in the weight of food and beverages to 36.75% from 45.86% in the existing 2012-based series. Food prices, which are prone to swings driven by weather conditions, supply disruptions and policy interventions, have historically been the largest source of volatility in headline inflation.

Reducing their weight is expected to smooth inflation readings and offer clearer signals to policymakers. This adjustment mirrors survey evidence showing food now accounts for about 39.7% of urban household expenditure and roughly 47% in rural areas, down markedly from a decade ago.

At the same time, the expert group has raised the weight of transport, information and communication to 12.41% from 8.59%, while recreation, sport and culture more than doubled to 4.86%. Health, personal care and other services have also gained share, underlining a structural shift towards services-led consumption as incomes rise.

Methodologically, the revamped CPI will expand to 12 major spending groups from six, in line with the COICOP(Classification of Individual Consumption According to Purpose) 2018 classification, improving international comparability.

The basket will track 358 weighted items, including a larger number of services. The new series will use 2024 as the base year, with 2025 serving as an overlapping year to statistically link the old and new indices and preserve historical continuity.

Another key change is the inclusion of e-commerce prices for the first time. Weekly data will be collected from 12 online markets in large cities, capturing prices of airfares, telecom plans, OTT subscriptions and selected services. The index will also move to standardised pricing of gold and silver jewellery rather than customised items, enhancing consistency and reducing measurement noise.

These changes are expected to improve the accuracy, credibility and policy relevance of India’s inflation data. By better reflecting how households spend today, the new CPI framework should provide a clearer guide for monetary policy and financial markets.