Examine the rationale and methodological improvements of the CPI base year revision to 2024=100. How does it affect monetary policy formulation?

Q. Examine the rationale and methodological improvements of the CPI base year revision to 2024=100. How does it affect monetary policy formulation? (15 marks, 250 words)

The National Statistical Office (MoSPI) has shifted the Consumer Price Index to base 2024=100, replacing the decade-old 2012 series—a recalibration vital because CPI is the statutory anchor for RBI's inflation targeting [1].

Rationale for revision - Outdated basket: 2012 weights (from NSS 2011–12) missed OTT, e-commerce and modern services, overstating food's share and distorting the true cost of living. - Coherence: aligns CPI with parallel GDP and IIP base-year updates for consistent national accounts [3].

Methodological improvements - Fresh weights derived from the Household Consumption Expenditure Survey 2023–24, capturing current spending patterns [3]. - Adoption of the international COICOP 2018 classification—12 divisions and 358 items—replacing the older 6-group structure, improving comparability and granularity [3]. - Wider market coverage and digital price collection enhance accuracy and timeliness.

Impact on monetary policy formulation - CPI (Combined) is the target variable under Section 45ZA, RBI Act 1934 (4% target, 2–6% band); a more representative index sharpens measurement of the legally notified goal [2]. - April 2026 headline of 3.48%, below the 4% midpoint, signals disinflation and gives the MPC policy space [1]. - Revised food weights refine reading of supply-side pressures—food inflation at 4.20%—feeding the ongoing framework review [2].

A statistically robust CPI strengthens the credibility of flexible inflation targeting, ensuring monetary decisions rest on an accurate nominal anchor. As RBI reviews the framework ahead of the next target notification, the modernised series advances the goal of price stability with sustainable growth.

(~250 words)

Sources: 1. CPI Press Release for April 2026, MoSPI (Base 2024=100) — headline 3.48% and food 4.20% inflation prints 2. Discussion Paper on Review of Monetary Policy Framework, RBI (Aug 2025) — Section 45ZA, 4% target, 2–6% band, framework review 3. First Press Release of CPI on Base 2024=100, MoSPI/PIB (Feb 2026) — HCES 2023–24 weights, COICOP 2018, 358 items, base-year alignment