The big inflation reset: What India’s new CPI means for you | Ankit Agrawal Study IQ

Summary

The video explains the significant update in India's Consumer Price Index (CPI) methodology, shifting the base year from 2012 to 2024. The update aims to better reflect modern consumer behaviors, including changes in housing, digital services, and overall spending habits. The speaker highlights the importance of CPI in measuring inflation and guiding economic policies. Key changes include a broader basket of goods, adjustments in weightage for categories like food and housing, and the overall impact on the economy, monetary policy, and government decisions. The update ensures more accurate and relevant data for policy formulation.

Takeaways

• 😀 Data plays a critical role in economic discussions, especially when comparing countries' GDP and inflation figures.
• 😀 Accurate data is crucial; without it, economic statistics lose their relevance.
• 😀 The **Consumer Price Index (CPI)** measures retail inflation, reflecting price changes of essential goods and services in comparison to the previous year.
• 😀 The latest CPI figure for January 2026 was **2.75%**, indicating inflation compared to January 2025.
• 😀 The Indian government has changed the CPI base year from **2012** to **2024**, reflecting changes in consumer habits over time.
• 😀 The CPI basket of goods now includes **358** items, up from **299** items, to provide a more accurate picture of inflation.
• 😀 The weight of food in the CPI basket has decreased from **45.86%** to **36.75%**, while the weight for **housing** has increased significantly, from **10%** to **17-18%**.
• 😀 New services such as **OTT subscriptions**, **mobile plans**, and **recreational activities** have been added to the CPI basket to better reflect modern spending patterns.
• 😀 Outdated items like **VCRs**, **DVD players**, and **tape recorders** have been excluded from the CPI basket due to changing consumer behavior.
• 😀 The shift to a 2024 base year ensures that the CPI more accurately reflects contemporary economic realities, helping policymakers make more informed decisions on inflation targets, monetary policy, and public welfare.

Q & A

Why is data important when discussing the economy?

Data is crucial for understanding the economy because all key decisions, policies, and comparisons are based on accurate data. For example, comparing GDP growth rates between countries, or understanding inflation, relies heavily on data accuracy. If the data is incorrect, the resulting numbers lose their meaning.

What is CPI (Consumer Price Index), and why is it important?

CPI measures the change in prices paid by consumers for a basket of goods and services. It is important because it reflects inflation, which affects the cost of living and purchasing power. Policymakers, including the Reserve Bank of India (RBI), use CPI to make decisions, such as adjusting the repo rate.

What does the shift in the base year for CPI mean?

The base year for CPI calculations has shifted from 2012 to 2024. This means that the basket of goods and services used to calculate inflation is now based on the consumption patterns and prices of 2024, providing a more accurate and updated representation of current economic conditions.

How does the government track inflation through CPI?

The government tracks inflation by monitoring a 'basket of goods,' which includes essential items like food, housing, fuel, clothing, education, and health. Changes in the prices of these goods and services are recorded and used to calculate CPI, which indicates how much prices have risen or fallen over time.

Why is the CPI important for the RBI's monetary policy?

The CPI is essential for the RBI's monetary policy because it helps determine inflation trends. The RBI uses CPI to decide the appropriate repo rate, which influences the economy's overall liquidity and borrowing costs. Maintaining inflation between 2% and 6% is the RBI's target.

How is CPI calculated year-over-year?

CPI is calculated by comparing the price level of goods and services in the current year with the previous year's prices. The formula involves subtracting the previous year's index value from the current year's, dividing by the previous year's value, and multiplying by 100 to find the percentage change.

What significant changes were made to the CPI basket in 2024?

The CPI basket has been updated to include 358 goods and services, compared to the previous 299. The number of goods has increased from 259 to 308, and services from 40 to 50. This expansion allows for a more realistic and comprehensive measurement of inflation.

Why did the government reduce the weightage of food in CPI calculations?

The weightage for food in CPI was reduced from 45.86% to 36.75% because people are spending less on food due to increased incomes and changing consumption patterns. Instead, more weight is given to housing, education, and other modern services that reflect current spending habits.

How do lifestyle changes affect the new CPI basket?

Lifestyle changes, such as increased spending on digital services like OTT subscriptions and mobile plans, have led to their inclusion in the CPI basket. The updated basket also accounts for modern services like travel, recreation, and personal care, which have become more significant in people's daily lives.

What is the significance of including digital market prices in the CPI?

Including prices from digital markets like Amazon, Flipkart, and local delivery services (e.g., Instamart) helps the government track the impact of online shopping and digital services on consumer spending. This makes CPI more relevant and accurate in today's increasingly digital economy.