India finally has a brand-new Consumer Price Index (CPI) basket that not only uses a fairly recent year as the base for prices – 2024 – but also considers the prices of goods and services households buy now instead of a-decade-and-a-half ago when it comes to calculating the overall change in price levels.
Thursday, the Ministry of Statistics and Programme Implementation (MoSPI) released the new CPI series, which showed retail inflation stood at 2.75% in January. But has it risen or fallen compared to the previous month or the same month of 2025 – this is one of the key themes data watchers are discussing.
As per the old CPI series, headline retail inflation stood at 1.33% in December. So, in comparison, inflation more than doubled in January. But this comparison is not valid for several reasons. For one, new goods and services which previously weren’t a part of the CPI now are, while others have been excluded. And how the prices of these items change affect the overall inflation rate.
Consider this: CPI inflation for December as per the old series was based on prices of CDs, DVDs, audio and video cassettes being 0.29% lower compared to the same month the previous year. These items were not part of the basket of goods and services used to calculate inflation for January under the new series. Instead, it contained items like headphones, earphones, ear pods, airpods, and bluetooth devices, whose prices were down 0.99%.
So, comparing the two inflation numbers would be like comparing two different fruit baskets: you might like one more than the other, but that’s about as far as you can go.
The back-series question
In such situations, statisticians and economists like to have what is called a ‘back-series’: old data presented in the context of the new. Although MoSPI has provided a ‘back-series’ of the headline index numbers – whose year-on-year percentage changes are the inflation rates – of the CPI going back to 2013, it is only a mechanical exercise. For instance, using the back-series provided and the so-called ‘linking factor’ used to connect the old and new series, it can be found that CPI inflation in December 2025 was 1.17% in the new series versus 1.33% in the old. Over 2025, the average inflation rate is little changed at 2.2% under both the series.
“…the fact that headline inflation is largely same in the new and old series despite a much lower weight of food in new series is a sign that core inflation is softer in newly rebased CPI,” economists from ICICI Securities Primary Dealership said in a report.
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Making such a comparison is a rather simplistic way to understand what inflation may have been like in 2025 as per the new series because the old CPI basket has not undergone any change or been reconstructed to mirror the new one: one must compare apples and apples to see which is smaller or larger.
Given the numerous changes in the new CPI in terms of data sources, items, markets from where prices are to be collected, methodologies, “construction of a detailed back series may need more deliberations and time too”, the Expert Group Report on Comprehensive Updation of Consumer Price Index noted last month. The immediate priority of the expert group was to release the new series.
Gold and silver
It is well known that food items have become less prominent in the new CPI. Another key weight change is that of gold and silver.
In the old CPI basket, gold had a weight of 1.08% and silver 0.11%. Now, gold/diamond/platinum jewellery together account for 0.62% of the new CPI, while silver jewellery makes up 0.31%.
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If not for the eye-watering rise in global gold and silver prices, India’s inflation would have been even lower in 2025 – according to The Indian Express’ calculations, CPI inflation in December 2025 would have been 0.26% and not 1.33% if gold (69% inflation) and silver (97% inflation) are excluded.
Bullion prices have continued to rise in 2026, with silver jewellery inflation hitting 160% in January under the new CPI series, while gold/diamond/platinum jewellery inflation was 47%. But this is jewellery price inflation, and not changes in commodity prices. This, according to Gaura Sen Gupta, IDFC First Bank’s Chief Economist, will capture inflation better at a consumer level.
What counts as core
While the Reserve Bank of India (RBI) has a 4% target in terms of headline inflation, it keeps a close eye on underlying price pressures which respond to demand changes – something it can control through interest rate hikes or cuts. This is called core inflation and can be broadly defined as inflation excluding food and fuel items, which are things you would buy irrespective of their prices because they are needed to live (food) and make a living (fuel to travel to work).
With no universal definition of core inflation, it is up to the RBI and economists to decide what items should be excluded to measure underlying price pressures. All food and fuel items, yes. What about certain fuel items like lubricants that can end up in non-fuel categories? And what about precious metals like gold and silver?
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If one uses the broadest definition the RBI has referred to in the past – no food or fuel product groups – then core inflation fell to around 3.4% or so in January from 4.6% in December 2025.
As Chief Economic Advisor V Anantha Nageswaran noted on Thursday, with the weight of food falling in the new CPI, headline inflation may be driven more by core inflation. This, he said, should make the RBI’s monetary policy response “more focused” on demand pressures. The problem is: what core inflation will the RBI monitor?
“…a direct comparison of core inflation definition across old and new series, especially when using broader category indices, may not be entirely appropriate. Clarification on how the RBI intends to define core inflation will be essential moving forward,” ANZ economists Dhiraj Nim and Sanjay Mathur said in a note on Friday.