Calling the revision of the Consumer Price Index (CPI) an “important development”,V Anantha Nageswaran, India’s Chief Economic Advisor, said the updated inflation series will make price signals more reflective of prevailing economic conditions and improve policy calibration.
Speaking at the release of the revised CPI series, Nageswaran emphasised that the new framework provides policymakers with a more contemporary and relevant basis to assess real incomes, consumption trends, and purchasing power across the economy.
The CPI is the primary gauge used by theReserve Bank of Indiato frame monetary policy decisions. It measures retail inflation and directly influences interest rate settings.
Under the revised series, the weightage of the food and beverages category — often prone to sharp fluctuations due to seasonal and supply-side factors — has been reduced. According to Nageswaran, this adjustment could make headline inflation less volatile, all else being equal.
Food prices are typically influenced by weather patterns, global commodity prices, and logistical disruptions. Such supply-driven shocks can distort overall inflation readings. With lower food weightage, inflation trends may now reflect underlying demand conditions more clearly.
The Chief Economic Advisor noted that inflation may increasingly be driven by core components — which exclude food and fuel — rather than temporary supply-side spikes in food prices.
This shift has significant implications for monetary policy. If inflation becomes less volatile and more demand-driven, the central bank’s response can focus more on managing aggregate demand pressures rather than reacting to short-term supply disruptions.
In practical terms, this could lead to more stable and predictable policy decisions, as the monetary authority would not need to respond aggressively to transitory food price shocks.
Nageswaran highlighted that the updated CPI series strengthens the information base for both monetary and fiscal policy decisions. By aligning inflation measurement more closely with current consumption patterns, policymakers can better assess purchasing power and real income trends.
This is particularly important in a fast-evolving economy where consumption baskets change over time due to urbanisation, income shifts, and lifestyle transitions.
The revision is not merely a technical adjustment. It reflects an effort to modernise India’s statistical framework so that macroeconomic indicators better capture on-ground realities.
With inflation signals expected to become less volatile and more aligned with core economic pressures, policymakers may gain greater clarity in designing growth-supportive yet price-stable policies.
Overall, the updated CPI series marks a structural refinement in India’s inflation measurement system, potentially enabling more precise economic management in the years ahead.
