Uneasy Calm in Inflation

The headline retail inflation fell to a 77-month low of 2.1% in June 2025, largely due to a seasonal decline in food prices. However, core inflation in essential non-food items like healthcare, education, and personal care remains high, raising concerns about the representativeness of headline inflation figures.

The Illusion of Comfort in Headline Inflation

• Fall Driven by Food Deflation: Food and beverages, holding a 46% weight in the Consumer Price Index, showed a marginal contraction of 0.2% in June 2025 due to a high base from the previous year and seasonal corrections—particularly in prices of vegetables, pulses, spices, and meat.
• Persistent Inflation in Core Essentials: Despite easing food prices, categories like healthcare (15-month high), education (4.4%), and personal care (14.8%) witnessed significant price increases—indicating rising costs in goods and services of daily necessity.
• Uneven Consumer Impact: While food inflation drove down the headline rate, the common citizen continues to face cost pressure in everyday non-food consumption, contradicting the overall narrative of “low inflation”.

CPI Methodology and Data Misalignment

• Weight Distortion in CPI: The CPI’s 46% weightage to food does not align with the actual household expenditure pattern revealed by recent Household Consumption Expenditure Surveys, which show food accounting for around 30% of the average budget.
• Base Year Obsolescence: The current CPI base year of 2011–12 fails to capture contemporary consumption dynamics. A revision is underway, but policy decisions—including monetary policy—continue to depend on outdated inflation metrics.
• Policy Blind Spots: Monetary easing or tightening is currently informed by a flawed CPI, leading to potential misjudgments in interest rate decisions and inflation targeting, thereby misaligning with ground-level realities.

Way Forward and Institutional Response

• CPI Base Year Revision Underway: The Ministry of Statistics and Programme Implementation (MoSPI) is in the process of revising the CPI base year and weights, which is expected to better reflect current expenditure patterns and inflationary pressures.
• Need for Multi-dimensional Inflation Monitoring; In addition to headline inflation, a nuanced monitoring of core and segmental inflation is essential to guide welfare and fiscal interventions more accurately.
• Perception vs. Reality; Policymakers must not be swayed by favorable headline numbers but should address the lived inflation experience of the average citizen—especially in services and non-food items crucial for quality of life.

Practice Question:

"Headline inflation is not always representative of real household inflation. In light of this, critically examine the current methodology of CPI calculation in India. Suggest reforms to make it more reflective of consumer realities."(250 words)