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CPI inflation: meaning, basket and how it is calculated
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CPI inflation is the year-on-year rise in the Consumer Price Index, which tracks the cost of a fixed basket of goods and services that households buy. It is the measure of inflation that the RBI targets under the inflation targeting framework, and the one most news reports mean by "retail inflation".
How it is calculated
Inflation for a month is the percentage change in the index over the same month a year earlier:
Inflation = (CPI this month − CPI a year ago) ÷ CPI a year ago × 100
For instance, if the index was 190.0 a year ago and 199.5 now, inflation is 9.5 ÷ 190 × 100 = 5.0%.
Who publishes it
The National Statistical Office (NSO) under the Ministry of Statistics and Programme Implementation releases CPI for rural, urban and combined India, normally on the 12th of each month for the previous month. The headline series uses the combined index. The base year has been 2012 for years, and the ministry has announced a move to a newer base, so check mospi.gov.in for the series in use.
What is in the basket
In the 2012-base series the basket has six groups: food and beverages, pan-tobacco and intoxicants, clothing and footwear, housing, fuel and light, and miscellaneous (health, education, transport and so on). Food and beverages carry the biggest weight, close to 46%, which is why vegetable, pulse and cereal prices move the headline so much. Core inflation is CPI excluding food and fuel.
Other consumer indices
- CPI-IW (industrial workers), from the Labour Bureau, is used to fix dearness allowance for central government employees.
How bank exams ask about it
Questions commonly ask who publishes CPI (NSO, not the RBI), which index the RBI targets, which group has the highest weight, and how CPI differs from the wholesale price index. Calculation questions give two index values and ask for the rate, as in the example above. Compare with WPI inflation so you can answer both. The wider syllabus is in banking awareness.
Where to find the latest figure
The latest print is on the MoSPI press release page and in the RBI's policy statements. Quote the month, not just the number.
Frequently asked questions
Is CPI inflation the same as the rate of price rise in my city?
No. The headline is an all-India average; urban, rural and state-wise figures differ.
Why does the RBI not target WPI?
WPI covers wholesale prices of goods only, not services or what households actually pay. CPI is closer to the cost of living, which is why it became the anchor.
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