The Consumer Price Index (CPI) is a statistical concept and a macroeconomic indicator that measures the change over time in the general level of retail prices of a fixed basket of goods and services purchased by households for consumption. It is calculated as the weighted average price of this market basket, with the weights reflecting the average household's expenditure on each item. The CPI was traditionally introduced to measure changes in the living costs of workers to compensate their wages for price changes. In India, the unified CPI (Combined), which includes both rural and urban prices, was introduced in 2011-12 by the Ministry of Statistics and Programme Implementation (MoSPI) to create a single, comprehensive measure of inflation for the entire economy.
The mechanism works by comparing the cost of the basket in a given period to its cost in a Base Year, which is set to an index value of 100. The formula is: CPI = (Cost of market basket in a given year / Cost of market basket in base year) x 100. The annual percentage change in the CPI is used as the official measure of retail inflation. The CPI is a key economic concept that connects directly to the monetary policy of the Reserve Bank of India (RBI). Since 2014, the RBI has used the CPI (Combined) as the official inflation target under its Flexible Inflation Targeting framework, aiming to keep inflation within a band of 2% to 6%.
The CPI series has recently undergone a significant change: the base year was updated from 2012 to 2024. This revision, released in February 2026, incorporated new weights based on the Household Consumption Expenditure Survey (HCES) 2023-24 to reflect current consumption patterns. The previous series, with a 2012 base, was considered outdated as it did not reflect structural changes in consumption behavior. The new series increased the number of weighted items from 299 to 358 at the all-India level and introduced 12 divisions in accordance with the Classification of Individual Consumption According to Purpose (COICOP) 2018. The CPI (Combined) replaced the Wholesale Price Index (WPI) as the main measure of inflation in 2013.