The consumer price index family in India

Detail

1. What the CPI measures

• Consumer Price Index (CPI): a cost-of-living index built from retail prices. It covers a reference group of consumers, such as industrial workers or urban households.
• It gives the current cost of a fixed basket as a percentage of what that same basket cost in the base year (the reference year, where the index = 100).

• Formula: CPI = (Cost of fixed basket in current year ÷ Cost of the same basket in base year) × 100

• MoSPI's definition: the CPI measures changes over time in the general level of retail prices of the goods and services that households buy for consumption [2].

• Inflation from the CPI is the year-on-year % change. You compare this month's index with the same month last year [2]:
• Inflation (%) = (Iₜ − Iₜ₋₁₂) ÷ Iₜ₋₁₂ × 100
• Worked example: all-India CPI-Combined (2024=100) was 104.46 in January 2026 and 101.67 in January 2025 [3].
• (104.46 − 101.67) ÷ 101.67 × 100 ≈ 2.74%. The published figure is 2.75%, because MoSPI calculates from unrounded indices [3].

2. How to read a CPI number

• "CPI-IW (2001 = 100) is 277 in December 2014" means this:
• A worker spent ₹100 on a typical basket in 2001.
• That worker needs ₹277 for the same basket in December 2014.

• So prices of that basket rose 177% over those years.

• The index asks whether the worker can still buy the basket. It does not ask whether they actually buy it. It measures purchasing power, not what people actually bought.

3. Key building blocks

• Basket of commodities: a fixed, representative set of goods and services that the reference group usually buys.

• Its weights (how much each item counts) come from household consumption expenditure surveys. An item that takes a bigger share of the family budget gets a bigger weight.

• Retail prices: the prices consumers pay in shops. The NSO (National Statistics Office, under MoSPI) collects them.

• In practice, the Field Operations Division of the NSS, MoSPI, collects monthly CPI prices [2].

• Wholesale prices: prices in bulk trade, between producers and traders. The WPI uses them.

• Retail price = Wholesale price + traders' margin (plus transport and other costs).

• This is why the CPI and WPI can move differently.

• Three reference periods in the CPI 2024 series [2]:

• Index reference period: the period whose index = 100. It is 2024.
• Weight reference period: the survey that gives the weights. It is HCES 2023-24.
• Price reference period: the period when base prices were collected. It is calendar year 2024.

4. Simple aggregate example (Class 12, National Income Accounting)

A consumer buys 90 kg of rice and 5 pieces of cloth.

Year	Rice price	Cloth price	Basket cost
2000 (base)	₹10/kg	₹100/piece	90×10 + 5×100 = ₹1,400
2005	₹15/kg	₹120/piece	90×15 + 5×120 = ₹1,950

• CPI (2005) = 1,950 ÷ 1,400 × 100 = 139.29. The cost of living rose about 39.3%.
• The quantities stay fixed at the base-year basket, so this is a Laspeyres-type index (an index that uses base-year quantities as weights).

5. Construction example: weighted price relatives (Class 11, Index Numbers, Table 7.4)

• Price relative (R) = (p₁ ÷ p₀) × 100. It shows how one item's price moved. p₀ is the base-year price and p₁ is the current price.
• Weight (W) = the item's share of the family budget.
• CPI = ΣWR ÷ ΣW. This is the family budget method, a weighted average of price relatives.

Item	W	p₀	p₁	R	WR
Food	35	150	145	96.67	3,383.45
Fuel	10	25	23	92.00	920.00
Cloth	20	75	65	86.67	1,733.40
Rent	15	30	30	100.00	1,500.00
Misc.	20	40	45	112.50	2,250.00
Total	100				9,786.85

• CPI = 9,786.85 ÷ 100 = 97.86, so the cost of living fell by 2.14%.
• NCERT slip: the book prints the food WR as 3,883.45. The correct value is 35 × 96.67 = 3,383.45. Only this value gives the printed total of 9,786.85.
• Working backwards to a weight (Class 11, Index Numbers, Q18):
• Given: CPI = 125, food index = 120, index for all other items = 135. Let food's weight = w.
• 120w + 135(1 − w) = 125 → 135 − 15w = 125 → w = 2/3.

• So food carries about 66.7% of the weight. This shows how heavy food is in a worker's basket.

• Today's official method in the CPI 2024 series works at two levels [2]:

• Jevons index (a geometric mean of price relatives) for elementary indices, meaning single items across markets.
• Young / modified Laspeyres index for higher-level indices. This is the same weighted-average idea as Table 7.4.

6. The family: variants, compilers and bases

Index	Compiler	Covers	NCERT base (May 2017 value)	Current position	Main use
CPI-IW	Labour Bureau	Industrial workers	2001=100 (278)	2016=100, released in 2020 [4]	DA of government employees; industrial wages
CPI-AL	Labour Bureau	Agricultural labourers	1986-87=100 (872)	2019=100, in effect from June 2025 [6]	Minimum wages in agriculture
CPI-RL	Labour Bureau	Rural labourers (farm + non-farm)	1986-87=100 (878)	2019=100, in effect from June 2025 [6]	Rural minimum wages
CPI-UNME	CSO (formerly)	Urban non-manual employees	—	Discontinued, replaced by CPI-Urban	—
CPI-Rural / CPI-Urban	NSO (MoSPI)	All rural / urban households; also state-wise	2012=100 (Rural 133.3; Urban 129.3)	2024=100, first release 12 Feb 2026 [3]	Regional inflation analysis
CPI-Combined (CPI-C)	NSO (MoSPI)	Rural + Urban	2012=100 (131.4)	2024=100 [3]	Headline retail inflation; RBI's target

CPI for Industrial Workers (CPI-IW)

• Compiled monthly by the Labour Bureau (Ministry of Labour and Employment).
• Prices come from 317 markets in 88 industrially important centres [5].
• Base moved from 2001=100 to 2016=100 in 2020 [4].
• The linking factor (the number that converts the new series into old-series terms) is 2.88 [4].

• Example: a new-series index of 130 × 2.88 ≈ 374 on the old 2001 base. This lets DA calculations stay continuous across the change.

• Used to revise Dearness Allowance (DA) (an extra payment that makes up for rising prices) for government employees, and to revise industrial wages [5].

• Food has the highest weight (NCERT exercise).

CPI for Agricultural Labourers (CPI-AL) and Rural Labourers (CPI-RL)

• Both are compiled by the Labour Bureau.
• CPI-RL is wider. It covers both agricultural and non-agricultural labourers in rural areas.
• Base revised from 1986-87=100 to 2019=100, in effect from the June 2025 index [6]. (NCERT: 1986-87=100.)

CPI for Urban Non-Manual Employees (CPI-UNME)

• Formerly compiled by the CSO.
• Discontinued and replaced by CPI-Urban.

CPI-Rural, CPI-Urban and CPI-Combined (NSO, MoSPI)

• MoSPI has released these indices since January 2011. The first base was 2010=100, then 2012=100 [2].
• New series: 2024=100, first released on 12 February 2026 [3]. (NCERT/scaffold: 2012=100.)
• Headline inflation, January 2026: CPI-C 2.75%, Rural 2.73%, Urban 2.77%. CPI-C index = 104.46 [3].
• Coverage (2024 series): 1,465 rural markets and 1,395 urban markets in 434 towns [2].

• Also 12 online markets in 12 towns with population above 25 lakh. Online prices are collected weekly [2].

• Administrative data is used for some prices [2]:

• rail fares from the Ministry of Railways
• fuel prices from PPAC (Ministry of Petroleum and Natural Gas)
• postal charges from the Department of Posts

• mobile subscriber shares from TRAI

• Airfares and OTT subscriptions are priced online [2].

• Prices are recorded on tablets using CAPI (Computer Assisted Personal Interview), which replaced paper forms [2].
• Back series: old-series values are linked to the new base with a linking factor [2]:
• LF = (annual geometric-mean CPI of the new series ÷ that of the old series) for the overlap year 2025.
• LF values: Rural 0.5222, Urban 0.5320, Combined 0.5267.
• Example: an old CPI-C (2012=100) value of 190 × 0.5267 ≈ 100.1 on the 2024 base.

7. CPI-C weights: 2012 series and the 2024 revision

• 2012 series weights (Economic Survey 2014-15) come from:
• the 2011-12 Consumer Expenditure Survey (68th NSS round)
• MMRP (Modified Mixed Reference Period: different recall periods for different items, e.g. 7 days for perishables and 365 days for durables).

Group (old 6-group structure)	CPI-C 2012	CPI-C 2024 [2]	Rural 2012 → 2024 [2]	Urban 2012 → 2024 [2]
Food and beverages	45.86	40.10	54.18 → 44.80	36.29 → 34.26
Pan, tobacco and intoxicants	2.38	2.99	3.26 → 3.73	1.36 → 2.07
Clothing and footwear	6.53	6.38	7.36 → 7.12	5.57 → 5.46
Housing	10.07 (urban only)	11.88	NA → 5.53	21.66 → 19.78
Fuel and light	6.84	5.49	7.94 → 5.96	5.58 → 4.91
Miscellaneous	28.32	33.15	27.26 → 32.86	29.54 → 33.52

• The 2024 series uses HCES 2023-24 (Household Consumption Expenditure Survey) for its basket and weights [2][3]. (Scaffold said "HCES 2022-24". The official source says HCES 2023-24.)
• Food's share fell but stays the largest [2]:
• Old 6-group structure: 45.86 → 40.10.

• New COICOP 2018 structure: the "Food and beverages" division is 36.75 in 2024. The comparable 2012 figure would be 42.62.

• Why food's share falls: as incomes rise, families spend a smaller share on food (Engel's law). Services such as health, transport, education and communication gain weight.

• COICOP 2018 adopted. COICOP is the Classification of Individual Consumption According to Purpose of the UN Statistics Division. It makes India's CPI comparable with other countries [2].

• The CPI now has 12 divisions (in place of 6 groups), 43 groups, 92 classes and 162 sub-classes [2][3].

• Bigger basket: weighted items rose 299 → 358 [2].

• Goods: 259 → 308.

• Services: 40 → 50.

• Rural housing is now included, for the first time [2].

• The rural "housing, water, electricity, gas and other fuels" division weighs 11.764%.
• Rural house rent alone weighs 2.457%.

• Rent is collected from 19,039 dwellings: 15,715 urban and 3,324 rural.

• Items added: streaming services, value-added dairy products, barley, pen drives, babysitters, exercise equipment [3].

• Items dropped: VCR/DVD players, radio, tape recorders, second-hand clothing [3].
• Free social transfers (for example, free ration grain) are excluded. The CPI counts only what households actually pay for, as the IMF CPI manual advises [2].
• Future base revisions: MoSPI plans to revise the base every 3–5 years, depending on when new HCES data is available [2].

8. Consumer Food Price Index (CFPI)

• CFPI: a food-only price index. The NSO compiles it for rural, urban and combined India.
• Definition (2012 series): the food and beverages group minus non-alcoholic beverages and minus prepared meals, snacks and sweets.

• NCERT error: the book says "alcoholic beverages". Alcoholic beverages actually sit in the pan, tobacco and intoxicants group, not in food.

• CFPI's weight in the 2012 CPI-C was about 39.

• Year-on-year change in the CFPI = food inflation.
• January 2026 (2024 base): 2.13% combined, 1.96% rural, 2.44% urban [3].
• Garlic (−53%), onion (−29%) and potato (−29%) pulled it down [3].

9. Why India needs separate CPIs

• Baskets differ by group.
• A labourer spends most income on food, so food inflation hits them hardest.

• A senior official's basket includes cars, air travel, education.

• One common index would misstate the cost of living for both groups.

• NCERT example: CPI-UNME could not represent the President of India's cost of living, because that basket is not typical of urban non-manual employees.
• Matching index to purpose:
• CPI-IW → DA of government and industrial employees.
• CPI-AL/RL → rural and agricultural minimum wages.
• CPI-C → monetary policy.

10. CPI-C as the monetary policy anchor

• Flexible inflation targeting: the RBI must keep inflation near a set number, but it may also care about growth.
• Under Section 45ZA of the RBI Act, 1934, the Central Government, in consultation with the RBI, sets the inflation target in terms of the CPI. The target is set once every five years [7].
• Target = 4% CPI-C inflation, with a band of ±2 percentage points (2%–6%) [7].
• Failure = average inflation above 6% or below 2% for three consecutive quarters [7].
• Why CPI-C and not WPI?
• The CPI is what households actually pay, including services. The WPI leaves services out.

• So the CPI shapes people's inflation expectations (what people think prices will do next).

• The RBI released a Discussion Paper on Review of the Monetary Policy Framework (21 August 2025) [8]. It covers questions such as whether to target headline inflation (all items, including food and fuel) or core inflation (without food and fuel).

Prelims Hooks

• CPI-IW, CPI-AL and CPI-RL → Labour Bureau. CPI-Rural, CPI-Urban, CPI-Combined and CFPI → NSO (MoSPI). A common trap is to swap the compilers.
• CPI-IW base 2016=100 (released 2020; linking factor 2.88 to the 2001 series) [4]. CPI-AL/RL base 2019=100 from June 2025 [6].
• CPI (R/U/C) new base 2024=100, first released 12 February 2026. Weights come from HCES 2023-24 [3]. The 2012 series used the 68th NSS round (2011-12).
• Headline inflation = y-o-y change in CPI-Combined. RBI target 4% ± 2%, set by the Central Government in consultation with the RBI under Section 45ZA [7].
• CPI-UNME has been discontinued and replaced by CPI-Urban.
• Food and beverages weight in CPI-C: 45.86 (2012) → 40.10 in the old structure / 36.75 under COICOP (2024) [2].
• CFPI leaves out non-alcoholic beverages and prepared meals. Alcoholic beverages sit in the pan-tobacco-intoxicants group.
• The CPI 2024 series follows COICOP 2018: 12 divisions, 358 items, and rural housing included for the first time [2].
• Index formula: Jevons at the elementary level and Young/modified Laspeyres at higher levels [2]. The NCERT family budget method is CPI = ΣWR/ΣW.
• CPI-IW → DA. CPI-AL → agricultural minimum wages. The WPI uses wholesale prices and has no services.

Mains Points

• Old base years distort policy.
• The 2012 series had food at about 46%. So food supply shocks (onion, tomato, pulses) pushed up headline inflation more than today's spending patterns justify.
• Rebasing to 2024 lowers food's share, adds services and rural housing, and brings in online prices [2][3].

• Result: the RBI's target and the DA/wage links now track actual household spending more closely.

• One CPI or many?

• Group-specific CPIs make wage indexation fairer (CPI-IW for DA, CPI-AL/RL for rural minimum wages).
• But different bases and compilers make the indices hard to compare.

• Regular 3–5 year rebasing tied to HCES [2], and aligning the Labour Bureau indices with it, is the reform direction.

• Headline vs core targeting (GS-III, monetary policy):

• The RBI cannot bring down supply-driven food inflation by raising interest rates.
• But food prices shape households' inflation expectations, so dropping food from the target is risky.

• The Section 45ZA framework (4% ± 2%) and the RBI's 2025 review [7][8] sit at the centre of this debate.

• Measurement choices affect welfare (GS-II):

• Free PDS grain is excluded from the CPI [2].
• So the CPI shows prices households actually pay, not the value of subsidies they receive in kind.
• This matters when the CPI is used to judge poverty lines, real wages or how well transfer schemes work.