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SBI Research: New CPI Methodology to Cause Marginal Inflation

  //food-wine.news-articles.net/content/2026/01/31 .. cpi-methodology-to-cause-marginal-inflation.html
  Published in Food and Wine on Saturday, January 31st 2026 at 10:06 GMT by moneycontrol.com
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New Delhi, January 31st, 2026 - A recent report from SBI Research suggests that the newly implemented Consumer Price Index (CPI) methodology, effective since January 1st, 2024, is projected to result in only a marginal increase in overall inflation - estimated to be between 20 and 30 basis points (bps). While not a dramatic shift, the implications of these adjustments, particularly the decreased weight assigned to the volatile food sector, could prove significant in stabilizing India's inflation trajectory.

The CPI is a crucial metric used to measure changes in the price level of a basket of consumer goods and services, serving as a key indicator of inflation and impacting monetary policy decisions. The recent revision, the first in over two decades, reflects evolving consumer spending patterns and aims to provide a more accurate representation of the Indian economy. Prior to 2024, the CPI heavily weighted food items at 40.66% of the overall index. The new methodology has reduced this to 33.93%, a substantial change that directly addresses a long-standing concern: the outsized influence of often-fluctuating vegetable prices on the headline inflation figure.

Reducing the influence of food price volatility is a strategic move. India's agricultural sector is susceptible to monsoon variations, supply chain disruptions, and global commodity price fluctuations, all of which can lead to significant swings in food prices. These swings, previously amplified by the high weighting in the CPI, often masked underlying inflationary trends in other sectors of the economy. By lowering food's share, policymakers and analysts can gain a clearer picture of 'core' inflation - the rate of price increases excluding volatile food and energy prices - making more informed decisions regarding interest rates and other economic interventions.

However, it's important to note that while the impact is projected to be modest - 20-30 bps - it isn't negligible. A 30 bps increase, while seemingly small, can still have implications for borrowing costs, investment decisions, and overall economic growth. The SBI Research report underscores that inflation won't necessarily decrease, but the new methodology could mitigate the severity of spikes caused by temporary supply shocks in the agricultural sector.

Beyond the food sector adjustment, the CPI revision also involves recalibrating the weights of other key expenditure categories. The weight of clothing and footwear, housing, and fuel has been reduced, reflecting a shift in consumer spending towards services. Simultaneously, the weight of health, education, and recreation has been increased, mirroring the growing importance of these sectors in the modern Indian economy. This rebalancing acknowledges the rising disposable incomes and evolving lifestyle preferences of Indian consumers.

The base year for the CPI has also been updated to 2017 from a previous, older baseline. This change ensures that the basket of goods and services accurately reflects current consumption patterns. Furthermore, the number of items included in the CPI basket has been expanded from 392 to 480, increasing the granularity and representativeness of the index. This larger and more refined basket should contribute to a more accurate and comprehensive measure of inflation.

The implementation of these changes comes at a crucial time for the Indian economy. Global economic uncertainties, geopolitical tensions, and fluctuating commodity prices all present challenges to maintaining price stability. While the CPI revision isn't a panacea for inflation, it's a positive step towards a more resilient and accurate measurement of price changes. Analysts will be closely watching the CPI figures in the coming months to assess the actual impact of the new methodology and its effect on monetary policy decisions by the Reserve Bank of India (RBI).

Looking ahead, the ongoing monitoring of consumer behavior and economic trends will be essential to ensure the CPI remains a relevant and reliable indicator. Regular revisions and updates to the methodology will be necessary to keep pace with the dynamic Indian economy and ensure that the CPI continues to provide policymakers with the information they need to effectively manage inflation and promote sustainable economic growth.