Inflation basket rejig: AirPods gain weight, food portion cut

New Delhi: AirPods, hand sanitisers, OTT subscriptions, air purifiers, ecommerce purchases, international airfares and rural housing are being added to India’s Consumer Price Index (CPI), as the inflation basket gets a makeover to reflect changing consumption patterns and help gauge price pressures more effectively. Besides the basket revamp, the exercise undertaken by the statistics ministry also involves updating the CPI base year to 2024 from 2012 and changing the weights of items tracked based on the Household Consumption Expenditure Survey 2023-24. The overhaul is intended to improve the accuracy of inflation measurement and enhance monetary policy decisions by the RBI.The CPI data for January, scheduled to be released on February 12, will be based on the new series.

Under the new series, food and beverages will carry a weight of 36.75%, down from 45.86%, in line with expectations that food spending declines as per capita incomes rise. The weights of transport and communication, housing and utilities, and personal care items will increase.

A lower weight for food is expected to reduce volatility in headline inflation, economists said. “With the share of food and beverages declining sharply, headline inflation volatility is likely to reduce, given the susceptibility of food prices to sharp fluctuations,” said Dipti Deshpande, principal economist at Crisil.


Of the 9.1-percentage-point decline in food’s overall weight, 3.3 percentage points are from reclassification of restaurant services into a separate category. Earlier, it was included under ‘cooked meals/snacks’ in the food basket.

A lower share of food and beverages in the index will make inflation “more aligned with the stance and directions of monetary policy” as food is quite volatile and uncertain, said Paras Jasrai, associate director at India Ratings & Research.

‘Inflation Volatility likely to Reduce’
The CPI data for January, scheduled to be released on February 12, will be based on the new series.

Under the new series, food and beverages will carry a weight of 36.75%, down from 45.86%, in line with expectations that food spending declines as per capita incomes rise. The weights of transport and communication, housing and utilities, and personal care items will increase.

A lower weight for food is expected to reduce volatility in headline inflation, economists said.

“With the share of food and beverages declining sharply, headline inflation volatility is likely to reduce, given the susceptibility of food prices to sharp fluctuations,” said Dipti Deshpande, principal economist at Crisil.

Of the 9.1-percentage-point decline in food’s overall weight, 3.3 percentage points are from reclassification of restaurant services into a separate category. Earlier, it was included under ‘cooked meals/snacks’ in the food basket.

A lower share of food and beverages in the index will make inflation “more aligned with the stance and directions of monetary policy” as food is quite volatile and uncertain, said Paras Jasrai, associate director at India Ratings & Research.

Rural India’s share in the CPI has risen to 55.4% from 53.52%, while the weight of urban areas has fallen to 44.6% from 46.48%.

“Rural areas have increasingly become a key driver of overall consumption demand, supported by strong growth in rural economies and income. This shift reflects a changing demand structure in the economy,” said CareEdge Ratings chief economist Rajani Sinha.

IMPACT ASSESSMENT
Economists estimate that applying new weights to the existing index could lead to an increase of 20-40 basis points (0.2-0.4 percentage point) in inflation.

Retail inflation was 1.3% in December and averaged 1.7% in the first nine months of fiscal 2026.

If the new series is applied, Nomura estimates, December inflation would have come in 0.6 percentage points higher at 2%, and FY26 (till December) at 2.2%. Bank of Baroda expects an upward bias of 25-40 bps.

The increase is largely attributed to the reduced weight of food items and the higher share of core components. The weight of core items (excluding food and beverages and fuel) would rise to 57.9% in the new series from 47.3%.

While food inflation has recently been negative, core has remained in the 3.8-4.5% range.

“Using the new weight for food and beverages and the old index values suggests that headline inflation in FY26 (up to December) would be 40-50 bps higher,” said Despande.

“But this also reflects an unusual period when food and beverages inflation fell to record lows. Over the past five years, a lower weight for food and beverages would typically have exerted a mild downward pull on the headline,” she added.

Inflation in the new series will be influenced not only by changes in weights but also by methodological revisions and use of new data sources, which would result in different index values.