Explain the Consumer Price Index (CPI) in India. Discuss its methodology, coverage, and issues.

Explain the Consumer Price Index (CPI) in India. Discuss its methodology, coverage, and issues.

Answer

1. Definition

CPI measures changes in prices paid by households for a fixed basket of goods and services.

2. CPI Series in India

• CPI Rural

• CPI Urban

• CPI Combined

3. Base Year

2012 = 100 (2011–12 expenditure weights)

4. Basket Composition

• Food & beverages

• Pan, tobacco & intoxicants

• Clothing & footwear

• Housing

• Fuel & light

• Miscellaneous services

5. Methodology

• Laspeyres index

• Fixed weights

• Price collection from ~1,200 centres

6. Issues

• Outdated consumption pattern

• Services inflation measurement

• Urban housing estimation lag

7. Conclusion

Despite limitations, CPI is India’s official inflation anchor.