New CPI and GDP series to reshape India’s growth–inflation assessment

India’s consumer price index (CPI) inflation base has been revised from 2012 to 2024, leading to significant changes in weights and item classification within the inflation basket.

Under the new CPI series, retail inflation for January stands at 2.75 per cent, potentially higher than what would have been reported under the earlier base and bifurcation.

The revised framework has reduced the weight of food and beverages by about 9 percentage points and consolidated household-related spending into two broader categories, which together account for 22 per cent of the basket. Food and household expenses now jointly make up 59 per cent of the total CPI basket.

India’s recent inflation trajectory, according to Ionic Wealth, has been supported by benign food prices. However, the revised CPI series could introduce a modest upward bias to headline inflation, while also improving stability given food’s inherently volatile nature.

In addition, a higher effective weight of imported goods and household consumption items could exert upward pressure on inflation if the rupee remains under stress.

On the positive side, a structurally firmer inflation print may help lift nominal GDP growth, support corporate revenue expansion, and improve fiscal metrics. That said, a possible dip around the reset in GDP data later this month, combined with firming inflation, could place the Reserve Bank of India in a dilemma over further monetary easing.

The increase in headline CPI relative to estimates under the old series is largely due to the lower weight assigned to food in the revised basket. Experts also note that food inflation dynamics may be influenced by reduced weights for volatile TOP items (tomato, onion, and potato), which have seen significant deflation in recent months.

According to Emkay, the new CPI series better reflects evolving consumption patterns across both rural and urban India, incorporating several methodological improvements. These changes are expected to enhance the robustness and reliability of inflation data going forward.

Market participants do not expect the revised inflation series to materially influence monetary policy in the near term. An extended rate pause by the RBI appears likely, supported by a cyclical upturn in growth and inflation, as well as improved confidence following the conclusion of the US–India trade negotiations.

Year-on-year inflation across 11 of the 12 CPI divisions ranged between 0.1 per cent and 3.4 per cent. Personal care, social protection, and miscellaneous goods and services stood out as an outlier, recording inflation of 19.0 per cent, largely reflecting the surge in gold and silver prices.

With another CPI inflation print for February due ahead of the next Monetary Policy Committee meeting, Icra said further clarity may emerge on how to interpret the revised data.

Separately, the new GDP series is scheduled for release by month-end and could lead to revisions in the size of the economy as well as quarterly growth rates during FY24–26. Together, these data points will be crucial in reassessing India’s growth–inflation mix and the future direction of monetary policy.