New inflation series is a welcome update, will improve policy response

The release of the new inflation series by the National Statistics Office on Thursday is part of an exercise to update the country’s macroeconomic indicators. It will be followed by the release of a new GDP series later this month, and thereafter by the Index of Industrial Production in May. These series incorporate new data sources and expand coverage to better reflect the changed economic realities of the country.

Under the new inflation series, with 2024 the base year, the basket of items as well as the weights assigned to them are based on the Household Consumption Expenditure Survey 2023-24. The earlier series, base year 2012, was based on the 2011-12 consumption survey. There have been significant changes in the household consumption basket in the intervening period. For instance, households now allocate a smaller proportion of their expenditure to food, with a greater share being diverted to discretionary spending. As a consequence, the weight assigned to the food and beverages category in the new series has fallen from 45.86 per cent to 36.75 per cent. This is a significant change. Food prices tend to be extremely volatile — under the earlier series, the consumer food price index had surged from 5.4 per cent in July 2024 to 10.8 per cent in October 2024 and then declined to -3.9 per cent in November 2025. This exerted a strong influence on headline inflation numbers. The lower weight assigned to this category will now reduce the impact of volatile food prices. The new series also reflects the increasing importance of housing and services in the household consumption basket. Some of the new items that have been introduced are rural housing, online media service providers/streaming services, babysitters and exercise equipment. As per the new series, inflation was at 2.75 per cent in January, well below the central bank’s inflation target of 4 per cent. Price pressures were muted across most categories, with the exception of the personal care, social protection and miscellaneous goods segments.

Updating price indices is not merely a technical exercise. It will have far-reaching consequences. For instance, the RBI’s inflation targeting framework revolves around CPI-based inflation. Thus, changes in the way inflation is measured will have implications for monetary policy. Members of the Monetary Policy Committee may now probably attach greater weightage to prices of non-food goods and services when deciding on interest rates. By reflecting the changes in the economy more accurately, these new series will help improve the policy response.