The Consumer Price Index (CPI) tracks changes in the retail prices of a representative basket of goods and services consumed by households. It is released monthly by the National Statistical Office (NSO) under the Ministry of Statistics and Programme Implementation. The current CPI series uses 2012 as its base year and includes a basket of 299 items.

CPI is composed of six major groups with distinct weights:

Different CPI measures are compiled for specific groups:

• CPI-Industrial Workers (CPI-IW),
• CPI-Agricultural Labourers (CPI-AL)
• CPI-Rural Labourers (CPI-RL) by the Labour Bureau, while the CPI-Combined is prepared by the NSO.

Significance of CPI

• Primary Inflation Indicator: CPI is India’s principal measure of retail inflation, reflecting price changes faced by consumers in both urban and rural areas.
• Guiding Monetary Policy: It serves as the nominal anchor for the RBI’s inflation-targeting framework (4% ± 2%) and directly influences interest rate decisions.
• Indexation Mechanism: CPI is widely used for indexation purposes, including the calculation of Dearness Allowance (DA) for government employees and various welfare transfers.

Reason for sharp decline:

• High base effect:  Food inflation was unusually high in October 2024 (around 9.7%), creating a favorable base that mechanically pushed this year’s year-on-year food inflation into negative territory. Since food carries a heavy weight of about 46% in the CPI basket, this statistical effect sharply pulled down overall inflation.
• Impact of GST Rate Reductions: Recent cuts in GST rates lowered the prices of several items particularly in clothing and footwear resulting in softer inflation readings.

This highlights the pressing need to update the CPI series, which still uses 2012 as its base year.