IAS/UPSC Coaching Institute  

15 Jan 2026 : Moving on

 Editorial 2: ​​​Moving on

Context

India is discarding an outdated inflation dataset in favour of a more relevant measure.
 

Introduction

The retail inflation data for December 2025 marks a turning point in India’s inflation measurement, closing the long-running 2012-base Consumer Price Index series. While headline inflation appears historically low, a widening gap between official data and lived experience raises serious concerns about accuracy, policy relevance, and the need for an updated CPI framework.

 

Context of the CPI series

  • The December 2025 retail inflation figure marks the last release of the Consumer Price Index (CPI) based on the 2012 base year.
  • From the next release, the CPI will move to a new base year with revised weightages.
  • CPI data over the past year have exposed the limitations of relying on an index that has not been updated for over a decade.

 

Headline inflation numbers

  • Retail inflation in December 2025 stood at 1.33%.
  • Though this was a three-month high, it was also the third-lowest reading since the current CPI series began.
  • During April–December 2025, average inflation was 1.7%, much lower than the 4.9% average during the same period in 2024.

 

Mismatch between data and lived experience

  • Despite low official inflation, people do not feel prices have eased.
  • Both anecdotal evidence and economic indicators suggest households are facing much higher inflation.
  • Government’s first advance GDP estimates show slower growth in private consumption compared to last year.
  • If inflation had truly fallen as sharply as official data indicate, consumption should have increased, but it has not.

 

Inflation perception among households

  • According to the December inflation expectations survey by the Reserve Bank of India:
    • Households perceived current inflation at 6.6%, far above the official 1.33%.
    • Inflation was expected to rise to 7.6% in three months and 8% over the next year.
  • The dominant perception is that prices are not only rising, but accelerating.
  • Official data fail to capture this reality, weakening their usefulness for policymakers.

 

Structural problems with inflation measurement

  • A single national inflation figure attempts to represent diverse price movements across India.
  • Prices from urban and rural areas, and from Kashmir to Kerala, are aggregated into one number.
  • This process inevitably loses regional and consumption-specific nuances.

 

Impact of an outdated CPI

  • CPI weightages are still based on 2012 consumption patterns.
  • Consumption behaviour has changed significantly, especially due to central and State subsidies and evolving lifestyles.
  • Using outdated weights magnifies distortions in measuring true inflation.

 

Upcoming CPI revision

  • On February 12, the government will release January inflation data using the new CPI series.
  • The new series will:
    • Update the base year to 2024.
    • Use revised weightages derived from the Household Consumption Expenditure Survey 2023–24.
  • This revision is long overdue and crucial for producing more realistic inflation estimates.

 

Conclusion

The shift to a new CPI series with a 2024 base year and revised consumption weightages is both necessary and overdue. Accurate inflation measurement is vital for credible policymaking, monetary decisions, and public trust. Bridging the gap between statistical inflation and household price experience will be crucial to ensure that economic signals truly reflect ground realities.