The Story of India’s Inflation: How the CPI Measures What We Pay
Every month, headlines flash: “Inflation rises to 6.1% – the highest in eight months“.
The number moves markets, shapes RBI decisions, and affects your grocery bill – yet few people know what it really means.
Why is the inflation rate “just 6%” when your rent, food delivery, and electricity bill have all gone up far more?
Why do official numbers seem disconnected from real life?
The answer lies in a quiet, meticulous process that happens across India every month – field officers from India’s National Statistical Office (NSO) visit over 1,100 villages and 1,100 towns, recording the prices of everyday essentials – from rice and milk to bus fares.”
Those numbers feed into India’s Consumer Price Index (CPI) – the backbone of how inflation is measured.
Let’s unpack this hidden system: how CPI was born, how it’s built, and why it shapes everything from your home loan rate to your pay raise.
The Birth of CPI in India
Inflation has been measured in India since the 1940s, but the CPI we know today was born in 2011-12 when MOSPI launched CPI (Combined) – unifying rural and urban India into one index.
Originally, there were separate indices:
- CPI-IW (Industrial Workers)
- CPI-AL (Agricultural Labourers)
- CPI-RL (Rural Labourers)
- CPI-UNME (Urban Non-Manual Employees)
Each measured inflation for a different group, based on distinct consumption patterns.
But they didn’t reflect the economy as a whole.
That changed in 2011–12, when the Ministry of Statistics and Programme Implementation (MOSPI) introduced the CPI (Combined) – a unified index for rural + urban India.
For the first time, India had a single inflation measure representing nearly 1.4 billion people’s cost of living.
Since 2014, the Reserve Bank of India (RBI) has used CPI (Combined) as the official inflation target, anchoring monetary policy under its Flexible Inflation Targeting framework.
So when the RBI raises or cuts repo rates, it’s responding to CPI.
How CPI Is Calculated – The Hidden Machine Behind the Number
The CPI might sound abstract, but it’s one of the most hands-on, ground-level data exercises in the world.
The Basket – What India Buys
The CPI is based on a “basket” of roughly 300–450 goods and services, determined by a massive Consumer Expenditure Survey.
Each item in the basket represents what an average Indian household spends on – food, rent, fuel, health, transport, clothing, and more.
Here’s what the basket roughly looks like:
| Category | Weight in CPI | Examples |
|---|---|---|
| Food & Beverages | 45.9% | Rice, pulses, milk, vegetables |
| Housing | 10.1% | Rent, maintenance |
| Fuel & Light | 6.8% | LPG, kerosene, electricity |
| Transport & Communication | 8.6% | Petrol, bus fare, mobile bills |
| Health | 5.9% | Medicines, doctor fees |
| Education & Recreation | 3.5% | Tuition, cinema, books |
Note:
These weights are based on the 2012 base year household consumption pattern from the National Sample Survey (NSS).
They are not fixed – they are revised every few years to reflect changing lifestyles and spending (for example, higher telecom use, or rising rent costs).
Food dominates – nearly half the index.
That’s why a bad monsoon can lift CPI even when gadgets or property prices don’t move.
Price Collection – About 2,200 Locations, Every Month
Across India, the National Statistical Office (NSO) collects prices from:
- 1,114 villages (rural price centres)
- 1,114 towns (urban centres)
Collectors visit fixed shops and markets each month, noting prices for standardized quantities – 1 kg rice, 1 litre milk, 1 haircut, 1 bus ticket, etc.
Each entry is geo-tagged, verified, and uploaded into MOSPI’s central system.
The data isn’t based on online prices or corporate data.
It’s the real prices people pay in mandis, markets, and neighbourhood stores – India’s economic pulse at ground zero.
From Prices to Index
Each item’s price is compared to what it cost in the base year (2012).
If milk was ₹25 per litre in 2012 and ₹50 today, its price index is (50/25) × 100 = 200.
Then, each item’s index is multiplied by its weight (how much the average household spends on it).
The weighted average of all items = CPI Combined.
Here’s a simplified example (not official MOSPI data) of how CPI is built:
| Item | Price (₹) 2012 | Price (₹) 2025 | Index | Weight (%) | Weighted Score |
|---|---|---|---|---|---|
| Rice | 25 | 45 | 180 | 5 | 9.0 |
| Milk | 28 | 64 | 229 | 4 | 9.2 |
| Bus fare | 5 | 10 | 200 | 2 | 4.0 |
| Rent | 3,000 | 7,000 | 233 | 10 | 23.3 |
| … | … | … | … | … | … |
When such weighted scores for hundreds of goods and services are aggregated, the result is India’s official CPI value – published each month by MOSPI.
As per MOSPI’s latest release (Sep 2025), the Combined CPI stands at 192.6 (Base 2012 = 100). That means consumer prices in India have risen by about 93% since 2012 what cost ₹100 then now costs roughly ₹193 in 2025.
From Index to Inflation
Inflation is simply the change in CPI over time.
Inflation (%) = ((CPI_now – CPI_last_year) / CPI_last_year) × 100
So if CPI = 192.6 this year and 184.1 last year,
Inflation = (192.6 − 184.1) / 184.1 × 100 = 4.6% — India’s latest annual inflation rate.
That’s the “headline inflation” you read about every month.
CPI and Inflation Over Time
| Year | Rural CPI | Urban CPI | Combined CPI | Annual Inflation (%) |
|---|---|---|---|---|
| 2011–12 | 92.8 | 93.8 | 93.3 | — |
| 2012–13 | 102.7 | 102.3 | 102.5 | 9.9 |
| 2013–14 | 112.6 | 111.8 | 112.2 | 9.5 |
| 2014–15 | 119.5 | 118.1 | 118.9 | 6.0 |
| 2015–16 | 126.1 | 123.0 | 124.7 | 4.9 |
| 2016–17 | 132.4 | 127.9 | 130.3 | 4.5 |
| 2017–18 | 137.2 | 132.5 | 135.0 | 3.6 |
| 2018–19 | 141.3 | 137.7 | 139.6 | 3.4 |
| 2019–20 | 147.3 | 145.1 | 146.3 | 4.8 |
| 2020–21 | 156.1 | 154.4 | 155.3 | 6.1 |
| 2021–22 | 164.5 | 163.1 | 163.8 | 5.5 |
| 2022–23 | 175.8 | 173.5 | 174.7 | 6.6 |
| 2023–24 | 185.6 | 182.4 | 184.1 | 5.4 |
| 2024–25 | 194.9 | 190.0 | 192.6 | 4.6 |
Why Inflation Feels Higher Than It Looks
If CPI inflation is 6%, why does it feel like 15% in real life?
Because CPI measures the average Indian household, not your household.
| Official CPI Logic | Real-Life Reality |
|---|---|
| Housing weight = 10% | But rent/EMIs are 30–40% of urban incomes |
| Education & healthcare = ~10% | Private schooling & hospitals are far costlier |
| Food dominates CPI (46%) | Urban consumers spend less on food, more on lifestyle |
| Base year = 2012 | Basket is outdated – it misses OTT, EVs, mobile data |
| Rent inflation measured, not home prices | Property price surge invisible in CPI |
So the CPI doesn’t lie – it just tells a different truth:
The inflation of the average household in India, not the inflation of your wallet.
In 2025, for example, milk prices have risen nearly 8% y-o-y, while rents in metros are up 12–15%. Yet food (which drives the CPI) has remained stable – pulling the official number lower.
Why the RBI Watches CPI
Since 2016, the RBI’s Monetary Policy Committee (MPC) has targeted CPI Combined inflation at 4% ± 2%.
That means:
- Above 6% : RBI raises repo rate to cool demand.
- Below 2% : RBI cuts rate to boost growth.
CPI is the compass that guides India’s monetary ship.
It determines your home loan EMIs, bond yields, and the rupee’s strength.
Inflation Through the Decades – India’s Price Story at a Glance
| Period | Economic Backdrop | CPI Trend |
|---|---|---|
| 1970s | Oil shocks, droughts | Double-digit inflation |
| 1980s | Fiscal expansion | 8–10% average |
| 1990s | Reforms, rupee depreciation | 10–13% spikes |
| 2000s | Global commodity boom | 6–9% |
| 2010s | Base-year shift, inflation targeting | 4–6% |
| 2020s | Pandemic, supply shocks | 5–7% range |
India has tamed inflation compared to its past – but it still spikes when food or oil prices jump.
One Month in the Field – Sample from the Price Collectors
Here’s what a real field survey might look like (simplified):
| Item | Unit | Urban Price | Rural Price | Combined Index (2012=100) |
|---|---|---|---|---|
| Rice | 1 kg | ₹45 | ₹38 | 172 |
| Milk | 1 litre | ₹64 | ₹54 | 229 |
| Diesel | 1 litre | ₹96 | ₹92 | 232 |
| Electricity | 1 unit | ₹7.50 | ₹5.50 | 210 |
| Movie ticket | 1 | ₹180 | ₹60 | 240 |
| Private tuition | Monthly | ₹2,500 | ₹800 | 280 |
Every one of these items contributes – in proportion – to the national CPI.
Inflation vs Cost of Living
Inflation ≠ Cost of living.
Inflation is the rate of change in prices.
Cost of living is the absolute level of what it costs to survive or thrive in a city.
You may face high costs even when inflation is low – because your city’s prices started high to begin with.
That’s why 6% inflation in Mumbai feels worse than 10% in rural Odisha.
India’s CPI vs the World
| Country | Inflation (2025 est.) | CPI Agency | Target |
|---|---|---|---|
| India | ~5.8% | MOSPI / NSO | 4% ± 2% |
| USA | 3.1% | Bureau of Labor Statistics | 2% |
| UK | 4.5% | Office for National Statistics | 2% |
| Brazil | 4.8% | IBGE | 3% ± 1.5% |
India’s inflation is higher – but more stable – than many peers, thanks to consistent RBI policy and large food production buffers.
The Coming Changes – CPI 2022
The Ministry of Statistics and Programme Implementation (MOSPI) is in the process of updating India’s CPI base year from 2012 to 2022.
This rebasing exercise is part of a broader effort to make the index reflect current consumption patterns and lifestyles.
The upcoming CPI (Base 2022 = 100) will include:
- New items: smartphones, OTT subscriptions, data plans, packaged food, EV expenses.
- Revised weights: higher share for housing, transport, and healthcare; lower for cereals and fuel.
- Improved urban–rural balance: more price centres and better sampling of services.
- Updated Consumer Expenditure Survey (2022–23): used to recalibrate household spending weights.
Once rolled out, the new CPI base year will make India’s inflation measure more contemporary and realistic, better matching what people actually buy and pay for.
That means future CPI will better match what you actually buy and spend on.
Final Take
Inflation isn’t a single number – it’s a mirror of how India lives, eats, travels, and dreams.
The Consumer Price Index may be technical, but it tells a deeply human story:
How ₹100 yesterday buys less today, and how that gap between aspiration and affordability shapes our nation’s pulse.
The next time you see “Inflation at 6%”, remember – behind that number lies thousands of price tags, hundreds of markets, and millions of small shifts in how India consumes.
That’s not just economics.
That’s India’s story, told through prices.
Source:
- MOSPI (NSO) – CPI (Base 2012 = 100), Press Release Oct 2025.
- RBI DBIE – CPI (Base 2012=100) → Prices and Wages → CPI Combined
Compiled & explained by Indiagraphs – India’s Data Storytelling Platform.
Frequently Asked Questions on CPI & Inflation in India
What is the Consumer Price Index (CPI)?
The Consumer Price Index (CPI) measures changes in the average price of a fixed basket of goods and services that households buy – such as food, housing, fuel, transport, and healthcare. It tracks how much more expensive it becomes to live over time.
Who publishes CPI data in India?
The CPI is compiled and published every month by the National Statistical Office (NSO) under the Ministry of Statistics and Programme Implementation (MOSPI).
How often is CPI released?
CPI data is released monthly, usually around the 12th–13th of each month, showing inflation for the previous month.
For example, the October 2025 release reported CPI for September 2025.
What is India’s current CPI base year?
The current CPI uses 2012 as the base year (2012 = 100).
MOSPI is now updating the base year to 2022, to better reflect today’s consumption patterns – including new items like data plans, OTT subscriptions, and electric vehicles.
What is the difference between CPI and WPI?
CPI measures prices at the consumer level (what households pay).
WPI (Wholesale Price Index) measures prices at the wholesale level (before retail markups).
CPI is used by the RBI to set interest rates, while WPI reflects producer-side inflation.
Why does inflation “feel” higher than official numbers?
Because CPI represents an average household, not your personal lifestyle.
For example, CPI gives only a 10% weight to housing, but in cities, rent or EMIs can form 30–40% of monthly expenses – making inflation feel higher for many urban families.
