Recent changes in the Consumer Price Index (CPI), the scale for measuring retail inflation in India, have attracted the attention of economists and market analysts. The latest report by State Bank of India (SBI) has raised questions over the selection of markets in the new calculation method of CPI. According to the report, the distribution of new markets included in the new index is geographically unbalanced, with Uttar Pradesh and Maharashtra disproportionately dominating. This disturbance can blur the real picture of the country’s inflation.
Huge imbalance in market expansion
To make inflation data more accurate, the government has introduced the CPI-2024 series, in which the geographical coverage and number of items have been increased. However, the SBI report raises questions about the quality of this extension:
- Dependence on new markets: A total of 565 new rural and urban markets have been added to the new series as compared to the old 2012 series. The surprising thing is that out of these 565 new markets, 43% share is from only two states, Uttar Pradesh and Maharashtra.
- Unbalanced Representation: The report clearly states that the representation of new markets is highly uneven and is skewed towards certain states. This means that the impact of prices of these two states on the national inflation rate may be greater than necessary.
What’s out and what’s in the CPI basket?
The basket of goods used to calculate inflation has also been updated to reflect changing consumption patterns:
- Number of items increased:The total number of weighted items in the new series has increased from 299 to 358. In this, the number of goods has increased from 259 to 314 and the number of services has increased from 40 to 50.
- What was added: The inflation data now includes rural housing, online media/streaming services, value-added dairy products, barley and its products, modern necessities like pen drives, hard disks, babysitters and exercise equipment.
- What was removed: No longer in use items such as VCR/DVD players, radios, tape recorders, old clothes and cassettes have been excluded.
Mistakes in e-commerce and selection of cities
To include the digital economy in the CPI, the government has launched ‘online market’ price tracking in 12 cities with a population of more than 25 lakh based on the 2011 census. This includes Mumbai, Delhi, Bengaluru, Hyderabad, Ahmedabad, Chennai, Kolkata, Surat, Pune, Jaipur, Lucknow and Kanpur. However, analysts believe that this excludes fast-growing cities like Indore, Patna, Nagpur, Bhopal and Thane, which are close to 25 lakh in terms of population and where online consumption is growing rapidly.
Impact on inflation figures
As soon as the new series is implemented, changes in the figures are visible:
- Headline Inflation: CPI inflation under the new series in January 2026 stood at 2.75%, higher than 2.55% under the old series (using a linking factor of 0.5267).
- Decline in core inflation: It is a matter of relief that in January 2026, the core inflation under the new series has come down to 3.4%, which was about 4.15% in the old series. The main reason for this decline is the reduction in the weightage of gold (Gold) from 1.08% in the 2012 series to 0.62% in the 2024 series.
The new base year for CPI certainly better reflects the consumption habits of changing India, especially with the inclusion of streaming services and online markets. However, the over-representation of some states in the data collection points and the neglect of tier-2 cities raise questions about whether this index will be an accurate representation of inflation across India.
