Discuss the significance of revising the CPI base year to 2024. How does a change in the consumption basket affect how inflation is measured and how policy responds?

The Consumer Price Index (CPI), compiled by MoSPI, is the measure behind RBI's 4% inflation target. In February 2026, its base year moved from 2012 to 2024=100, and its weights now come from HCES 2023-24 [1]. This is more than a technical update. It changes what "inflation" captures, and so it changes how policy should respond.

Significance of the Base Revision

• Current spending pattern: a basket more than ten years old is replaced by weights from how households spend today [1].
• Global comparability: spending is now grouped into 12 divisions under the UN's COICOP 2018 standard, in place of the earlier 6 groups [1].
• Continuity: a linking factor joins the 2012 series (data up to December 2025) to the 2024 series (data from January 2026) [2].
• Policy credibility: a target is only as credible as the index it tracks.

Effect on Measuring Inflation

• Lower food weight: food price shocks now move the headline number less [1]. For headline inflation to cross 6%, non-food prices must rise too.
• Larger services share: education, communication and housing now carry more weight [1]. In October 2026, headline CPI reached 6.1%. Clothing, housing-utilities, education (4%) and information & communication all hit series highs [4].
• Comparison caveat: a "series high" means the highest since January 2026 [2]. Breaches on the old basket cannot be compared one-to-one with breaches on the new one.

Effect on Policy Response

• Less room to "look through" price rises: RBI notes that food prices may not respond to interest rates in the short run [3]. Services and core inflation do respond, so a services-led breach weakens the case for rate cuts.
• Recalibrating the framework: RBI's review asked whether headline or core inflation should guide policy, and whether the 2–6% band should change [3]. A new basket makes this question more urgent.
• Supply-side tools: lower sown area for rice, maize and oilseeds, and a likely fall in tur output [4], call for stock limits, cuts in import duty and releases from buffer stocks. These tools belong to the Government, not the MPC.

Overall, the 2024 base brings measurement in line with how Indians now spend, but it shifts the drivers of inflation towards services, which monetary policy can influence. Going forward, the MPC should track the core trend while the Government manages food supply. RBI's framework review should also state clearly how the 4% target applies to the new basket [3]. Accurate statistics make policy credible and evidence-based, which supports price stability and inclusive growth (SDG 8).