CPI base year shifts to 2024: what it means for inflation and investors

Two colleagues step out after lunch, trying to decode why inflation got a fresh measuring tape.

Sanket: Bro, why is everyone suddenly talking about a new inflation base year? What’s new about inflation?

Suman: Because the government has rebuilt Consumer Price Index (CPI) using a newer shopping basket and then reset the baseline year from 2012 to 2024.

Sanket: CPI sounds like exam syllabus. What is it, simply?

Suman: Think of CPI as a monthly household bill scorecard. It tracks what a fixed basket of common goods and services costs. Also, it counts what people actually pay for. Free handouts do not enter this bill. Inflation is simply how much this CPI number has risen compared with the same month last year.

Sanket: And this base year thing means what?

Suman: Base year is the starting ruler set to 100. In CPI 2024, the average 2024 price level is 100, and later months show how far prices moved from that. For instance, CPI general (rural and urban combined) is 104.46 for Jan-2026 vs 101.67 in Jan-2025, implying a 2.75 per cent inflation.

Sanket: Why touch the base at all?

Suman: Because spending habits changed since 2012. More services, more digital buys, different priorities. An old basket merely describes a world that moved on.

Sanket: What did they use to update the basket?

Suman: They used the latest Household Consumption Expenditure Survey (HCES) for 2023-24, which captures what households spend on across rural and urban India.

Sanket: Why did they pick 2024 as the base year?

Suman: To keep the weights and base prices close in time. The weights come from the 2023-24 spending survey, and the base prices were collected through 2024.

Sanket: Did they just change the base year or also expand what they track?

Suman: They expanded it. CPI 2024 covers 1,465 rural markets and 1,395 urban markets across 434 towns. The basket is bigger too, with more goods and services. And it adds 12 online markets in 12 big cities to capture e-commerce prices.

Sanket: With so many markets, how do they turn all those prices into one CPI number?

Suman: Prices are collected from rural and urban markets each month, and from online markets weekly. These prices are converted into indices for items and higher groups using standard index formulas, and then combined using spending weights. Rural and urban indices are compiled separately first, then merged into the combined CPI using rural and urban weights. At the item level they use the Jevons index, and at higher levels they use a Young or Modified Laspeyres method.

Sanket: What else is new?

Suman: Price collection has moved from paper to tablets through Computer Assisted Personal Interviewing (CAPI). They also use online sources for some services like airfares and OTT subscriptions, and official administrative data for standard prices like rail fares, postal charges, and fuel.

Sanket: Who actually collects these prices?

Suman: National Sample Survey (NSS) field teams collect the market prices for the Ministry of Statistics and Programme Implementation (MoSPI).

Sanket: Give me one example of a real change people will recognise.

Suman: Rural house rent is included for the first time.

Sanket: Ok, now the real question. As a retail investor, what changes for me?

Suman: Three things mainly. How you read inflation, how you compute real returns, and how you do long-range planning like retirement.

Sanket: Hold on. What is real return?

Suman: Real return is what you earn after inflation. FD gives you a number. Inflation takes a cut. What’s left is real return. So, if your FD gives 7 per cent nominal interest and inflation is 3 per cent, your real return is 4 per cent (7 minus 3). CPI is the inflation number many people use for this subtraction.

Sanket: That sounds like a small technicality!

Suman: No, it can be bigger than it looks. If your retirement planning spreadsheet assumes a certain inflation rate, even a small shift changes the required retirement corpus, the equity allocation comfort, and the withdrawal path after retirement.

Sanket: How should I use CPI for retirement planning then?

Suman: Use CPI as a general living cost guide, not as your personal inflation. Many households face higher inflation in health and education than the headline CPI. So keep separate assumptions for health and education if those are major expenses.

Sanket: You said the basket weights changed. What is the direction of change in simple terms?

Suman: Food has become less dominant in the CPI basket than before. Housing and several service heavy categories have become more important, like transport, health, communication, and personal services.

Sanket: Why should an investor care about that shift?

Suman: Because it affects what the headline inflation number reacts to. If food weight is lower, a food price spike has slightly less pull on overall CPI than earlier. If services have more weight, changes in service prices can matter more for the headline.

Sanket: I hope CPI is not always about dal and milk!

Suman: January 2026 did that nicely. The hottest price jumps were led by silver jewellery at 159.67 per cent, then tomato at 64.80 per cent, coconut copra at 47.18 per cent, gold diamond and platinum jewellery at 46.77 per cent, and coconut oil at 40.44 per cent. Big spikes, but each has a small CPI weight.

Sanket: So does this basket change automatically make inflation look lower?

Suman: No. It only changes what the index is more sensitive to. The direction still depends on how prices move across food, housing, services, fuel, and the rest.

Sanket: What about interest rates and bond yields. Does the new CPI affect them?

Suman: Indirectly. Markets and policy watch inflation prints. If the new CPI measures inflation a bit differently, expectations about the inflation path can shift. That can influence bond yields and debt fund returns over time. Not mechanically on day one, but through the way inflation is read.

Sanket: What about products that say inflation linked?

Suman: If a contract ties payouts or yearly hikes to CPI, a base change can matter. When the base year changes, the government provides a conversion factor to carry old CPI values into the new series so the contract can continue without a break. The impact then depends on which CPI version the contract names and how that conversion is applied.

Sanket: How about taxes? Anything changes for tax planning?

Suman: Your tax does not change just because CPI base changed. Slabs and rates do not auto update with CPI in a mechanical way for individuals. CPI is more of a cost of living benchmark than a direct tax trigger.

Sanket: Any other practical takeaways?

Suman: Two. First, update your spreadsheets to use CPI 2024 for current inflation tracking. Second, stop using a single inflation number for all goals. Use ranges, and stress test your plan for higher inflation scenarios, especially for health costs.

Sanket: So, the bottom line is?

Suman: CPI 2024 is a better mirror of today’s spending and today’s price world. For you, it changes the measuring tape, not the actual prices or your interest rate. But it can change how you judge real returns and how safely you plan long-term goals.

Sanket: Thanks for the explanations. Now let’s get back to work before the boss rebases our day to 100!

Published on February 14, 2026