India's CPI Inflation Basket Gets Major Modernization with 358 Items
The Consumer Price Index (CPI), India's crucial macroeconomic indicator measuring retail inflation, is undergoing a significant transformation to better reflect contemporary consumption patterns. The newly updated CPI basket will now encompass 358 goods and services, a substantial increase from the current 299 items that were based on the 2011-12 consumer expenditure survey.
Modern Goods and Services Enter Inflation Calculation
For the first time, India's headline retail inflation rate will incorporate prices of numerous modern household items that have become mainstream but were previously excluded from official calculations. The updated basket includes air purifiers, air pods, health supplements like protein powder, mayonnaise, and even services of priests.
Reflecting the digital transformation of entertainment consumption, the new CPI series will specifically track subscription price changes for popular online streaming platforms including:
- Netflix
- Amazon Prime Video
- JioHotstar
- SonyLIV
- YouTube Premium
- ZEE5
According to the expert group report on Comprehensive Updation of Consumer Price Index, price collection for these services will focus on base subscription plans with one-month validity. "For each platform, two price quotations (if available) corresponding to the base subscription plans with a validity of one month shall be collected; where a one-month plan is not available, the nearest available subscription plan shall be considered for price collection," the report specified.
Streamlined Approach for Digital Services
Given that streaming subscription rates remain largely uniform across the country, authorities will compile a single all-India index for these services that will be applied consistently across all states. This approach recognizes the nationwide standardization of digital service pricing while maintaining accuracy in inflation measurement.
Broader Statistical Overhaul Underway
This modernization of CPI inflation forms part of a comprehensive overhaul of India's official statistics being implemented by the Ministry of Statistics and Programme Implementation (MoSPI). Based on consumption patterns revealed in the 2023-24 Household Consumption Expenditure Survey (HCES), the new CPI inflation series will use 2024 as the base year for prices.
The first release of this updated series, covering January data, is scheduled for February 12. This will be followed by additional statistical updates including:
- A new GDP series with 2022-23 as base year, featuring sweeping methodological changes, to be released on February 27
- Revised Index of Industrial Production with new base year of 2022-23, scheduled for May release
Expanded Basket Reflects Changing Consumption
The enhanced CPI basket includes numerous other contemporary goods and services whose prices will now factor into retail inflation calculations. Additional inclusions span:
- Piped natural gas
- Induction cooktops
- Decorative lights and paintings
- Medical devices like nebulisers
- Massagers and tablets
- Pen-drives and external hard disks
- Pets and pet products
- Hair colour products
- Babysitting services
Simultaneously, obsolete items have been removed from the basket, including audio and video cassettes, tape recorders, and VCDs, acknowledging technological obsolescence.
Structural Shift Toward Services
The new CPI basket demonstrates a significant structural shift, becoming more services-oriented compared to the 2011-12 version. The weight of food and beverages has decreased substantially from 45.86% to 36.75%, aligning with Engel's Law which observes that as household incomes rise, the proportion spent on food declines.
"We judge that the weighting of services will increase under the new series, consistent with the shift in household consumption," noted Nomura economists Sonal Varma and Aurodeep Nandi in their recent analysis.
Policy Implications and Inflation Management
The absence of commonly purchased modern goods and presence of outdated items in previous CPI calculations had been a persistent concern among policymakers, particularly since the Reserve Bank of India adopted flexible inflation targeting in 2016. Economists suggest the updated basket could enhance inflation management.
"A lower food weighting and a higher share of sticky services should dampen the volatility of the CPI series, and lead to less of a divergence between headline and core. It should also make the RBI's inflation targeting mandate easier, as large food price shocks have historically led to inflation undershooting/overshooting its target band," added Varma and Nandi.
This comprehensive update represents India's statistical system catching up with rapidly evolving consumption patterns, ensuring inflation measurements remain relevant and accurate for economic policymaking in the digital era.
