Syllabus: Indian Economy and issues relating to planning, mobilization of resources, growth, development and employment
Context
- December 2025 retail inflation marks the final CPI release with 2012 as base year.
- CPI revision addresses limitations of outdated consumption weights and base year.
Key Inflation Trends
- December 2025 CPI inflation stood at 1.33%, a three-month high statistically.
- It was also the third lowest inflation reading since the 2012 CPI series began.
- Average inflation (April–December 2025) was 1.7%, sharply lower than 4.9% in 2024.
Mismatch Between Data and Experience
- Despite low official inflation, consumer experience suggests higher price pressures.
- Private consumption growth is expected to slow, as per GDP first advance estimates.
- Lower inflation should have boosted consumption, but this has not occurred.
- RBI Inflation Expectations Survey (December) showed households perceived inflation at 6.6%.
- Households expected inflation to rise to 7.6% in three months and 8% in one year.
Structural Issues with CPI Measurement
- A single national inflation figure masks regional and rural–urban price variations.
- CPI aggregates prices from diverse geographies, losing local consumption nuances.
- The 2012 base year weights reflect outdated consumption patterns.
- Consumption behaviour has changed significantly due to central and State subsidies.
- Outdated weights weaken CPI’s ability to reflect actual cost-of-living pressures.
Upcoming CPI Revision
- January 2026 inflation data will be released using the new CPI series.
- The base year will be updated to 2024, replacing the 2012 base.
- New weights will be derived from the Household Consumption Expenditure Survey 2023–24.
- The revision is expected to improve accuracy, relevance, and policy usefulness.
Significance
- Updated CPI will better capture current consumption realities and inflation experience.
- Accurate inflation measurement is critical for monetary policy and welfare decisions.
