India’s new headline inflation data, with 2024 as the base year for prices, will see the weight of food and beverage items fall from 45.86% to 36.75%.
According to documents published by the Ministry of Statistics and Programme Implementation (MoSPI) on Thursday, the new series will also see housing become a more prominent component of the Consumer Price Index (CPI) basket — a move which, in conjunction with certain methodological changes adopted to measure rent increases more accurately, will likely result in higher housing inflation and exert upward pressure on overall retail inflation.
The high weight of food in the CPI has been a longstanding concern of policy-makers and economists. Because food items make up almost half the consumption basket, sharp changes in their prices can often drive the headline inflation rate higher or lower. This has been apparent over the second half of 2025. Starting June 2025, food inflation has been below zero — implying that food prices have been lower each month compared to the same month of 2024. This helped drag down headline CPI inflation sharply, with the October 2025 print coming in at an all-time low of 0.25%, with food inflation also at a record low of (-)5.02%.
“By considering the new weights on unchanged index, we have calculated new CPI with old indices and found that overall CPI will increase marginally by 20-30 bps (basis points). While in the months when food inflation is higher, the new CPI will be lower by 20-30 bps,” Soumya Kanti Ghosh, State Bank of India’s Group Chief Economic Adviser, said.
For the Reserve Bank of India (RBI), which sets the country’s key interest rate (repo rate), this high food weight has been a longstanding issue as it is based on household consumption patterns from 2011-12, meaning that the existing CPI inflation series is outdated and does not present the correct picture of prices in the Indian economy.
CPI food inflation chart
According to the economic theory developed by German statistician and economist Ernst Engel in the 19th century, as the income of a household rises, the proportion it spends on food reduces. This has been borne out in the results of MoSPI’s latest survey.
The 2023-24 Household Consumption Expenditure Survey (HCES), on which the new CPI basket has been updated, saw rural households spend 47.04% of their Monthly Per Capita Consumption Expenditure (MPCE) on food, down from 52.9% in 2011-12, which is the basis for the existing CPI inflation series. For urban households, the share of food fell from 42.62% of MPCE to 39.68% in the same period.
Relief for RBI
The RBI’s monetary policy, which shapes inflation by influencing demand, is found wanting when confronted with supply-side issues that either raise or lower food prices — an increase or decrease in interest rates cannot, in the short run, lead to a rise or fall in the supply of food items such as vegetables or cereals, and lower or raise their prices.
In the past, there have been occasions when the RBI has not been able to cut interest rates because high food inflation has kept overall inflation elevated. It was in this context that two years ago, the Economic Survey for 2023-24 had said it was worth exploring if India’s inflation targeting framework should target inflation excluding food items. However, the RBI argued against the suggestion, with then Governor Shaktikanta Das saying in August 2024 that while the Central bank may look through temporarily high food inflation, it cannot afford to do so in an environment when it is persistently elevated.
The law requires the RBI to target a CPI inflation rate of 4% in a band of 2-6%. This flexible inflation targeting framework, or FIT, is currently under review, with the target for the five years starting April expected to be announced by March. Economists widely expect the FIT framework to be retained in its present form.
New CPI basket
The publication of the broad category weights of the new CPI basket comes ahead of the release of the first inflation number under the new series on February 12, when data for January will be released. Before that, the exact weights of each item in the CPI basket will be made available.
According to the report of the expert group on Comprehensive Updation of Consumer Price Index released on Thursday, the new CPI basket will contain 358 items, up from 299 currently.
In addition to more items becoming a part of the CPI basket, MoSPI has also reorganised the categories. As such, it is not possible to precisely compare new category weights with old ones. For instance, “education services” has a weight of 3.33% in the new series. Earlier, “education” was a sub-group under the “miscellaneous” category and had a weight of 4.46% in the CPI basket.
“In order to establish the connectivity between CPI 2012 and CPI 2024 series, the EG (expert group) recommended to release the linking factor for calculation of back series of All India combined, rural and urban level with the first release of CPI 2024. However, more deliberations would be required for the preparation of granular back series,” the report of the expert group said.
While the weight of food will fall in the new CPI series, some other categories are set to see an increase. Key among these is housing.
At present, housing has a 10.07% weight in the CPI basket. This is set to rise to 17.66% in the new series. The large increase in the weight of housing in the new series is primarily due to the category being expanded to include relevant residential utilities such as water, electricity, gas and other fuels. However, households are also spending more on rent now. As per the 2023-24 HCES, the share of rent in MPCE was 0.56% for rural India (up from 0.45% in 2011-12) and 6.58% for urban India (up from 6.24% in 2011-12).
While a lower food weight is expected to reduce volatility in the headline inflation rate, an increase in the weight of housing will, in all likelihood, result in higher inflation, especially in light of certain methodological changes being made by MoSPI to more accurately measure housing inflation — like the exclusion of accommodation provided by employers from the sample of houses used to calculate housing inflation.
