India's New CPI Series: Food Weight Drops to 37%, Housing Gains Prominence
India is set to introduce a new Consumer Price Index (CPI) inflation series with 2024 as the base year, marking a significant shift in how retail inflation is measured. The weight of food and beverage items in the CPI basket will decline from 45.86% to 36.75%, reflecting updated household consumption patterns from the latest surveys. This adjustment is expected to reduce volatility in overall inflation rates, as food prices have historically driven sharp fluctuations.
Background and Rationale for the Change
The high weight of food in the CPI has long been a concern for policymakers and economists. With food items constituting nearly half of the consumption basket, their price swings have often dictated headline inflation trends. For instance, in the latter half of 2025, food inflation turned negative, pulling down overall CPI inflation to record lows, such as 0.25% in October 2025. The new series, based on the 2023-24 Household Consumption Expenditure Survey (HCES), aligns with Engel's law, which states that as incomes rise, households spend a smaller proportion on food. Rural households now spend 47.04% on food, down from 52.9% in 2011-12, while urban households spend 39.68%, down from 42.62%.
Impact on Inflation and RBI Policy
The Reserve Bank of India (RBI) has faced challenges due to the outdated CPI series, which was based on 2011-12 consumption data. The high food weight complicates monetary policy, as interest rate adjustments are less effective against supply-side shocks in food prices. In the past, elevated food inflation has sometimes prevented the RBI from cutting rates. The new series may provide relief by reducing food's influence, though the RBI has previously argued against excluding food from inflation targeting, emphasizing the need to address persistently high food inflation. The flexible inflation targeting framework, aiming for 4% CPI inflation within a 2-6% band, is under review, with expectations it will be retained.
Key Changes in the New CPI Basket
According to documents from the Ministry of Statistics and Programme Implementation (MoSPI), the new CPI series will feature 358 items, up from 299, with reorganized categories. Housing weight will increase from 10.07% to 17.66%, partly due to the inclusion of utilities like water and electricity, and higher rent shares. For example, rent's share in Monthly Per Capita Consumption Expenditure rose to 0.56% in rural India and 6.58% in urban India. This shift, combined with methodological changes to measure rent more accurately, is likely to exert upward pressure on overall inflation.
Expert Insights and Future Implications
Soumya Kanti Ghosh, Group Chief Economic Adviser at State Bank of India, noted that the new weights could increase CPI by 20-30 basis points when food inflation is low, but decrease it by a similar margin when food inflation is high. The first inflation data under the new series will be released on February 12 for January, with detailed item weights to follow. An expert group has recommended linking factors for back-series calculations, though more deliberations are needed for granular data. While lower food weight may stabilize inflation, higher housing weight could lead to increased inflation readings, shaping future economic assessments and policy decisions.
