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CPI Inflation Hits 6-Year Low: Understanding the Consumer Price Index

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Retail inflation, as measured by the Consumer Price Index (CPI), dropped to a 6-year low of 2.10% in June 2025, according to the Central Statistics Office (CSO) under the Ministry of Statistics and Programme Implementation (MoSPI).


What is the Consumer Price Index (CPI)?

  • Definition: Measures the average change in prices paid by consumers for goods and services over time.

  • Purpose: Tracks retail inflation based on a basket of goods commonly consumed by households.

  • Base Year: Revised to 2012.

  • Compiled By: CSO, MoSPI.


Significance of CPI

  • Inflation Targeting: Used by RBI for monetary policy formulation under its inflation-targeting framework.

  • Macroeconomic Indicator: Helps assess price stability, cost of living, and purchasing power.

  • Wage Indexing: Acts as a deflator in national accounts and for adjusting dearness allowance for employees.

  • Current Trend: The 2.10% figure suggests strong price stability and control over inflation.

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UPSC-Relevant Pointers

  • Headline CPI includes food, fuel, housing, and clothing.

  • Core CPI excludes food and fuel (highly volatile).

  • CPI is distinct from Wholesale Price Index (WPI), which captures price movement at the wholesale level.


UPSC Prelims MCQ

Q. With reference to the Consumer Price Index (CPI) in India, consider the following statements:

  1. It is published by the Reserve Bank of India.

  2. It includes price changes in both goods and services.

  3. CPI is used as the main tool for inflation targeting in India.

Which of the statements given above is/are correct?

A. 1 and 2 only

B. 2 and 3 only

C. 1 and 3 only

D. 1, 2 and 3

Answer: B. 2 and 3 only

Explanation:

  • Statement 1 is incorrect: CPI is published by the CSO under MoSPI, not RBI.

  • Statements 2 and 3 are correct: CPI includes goods and services, and is used by RBI for inflation targeting.


UPSC Mains Question (GS3 – Economy)

Q. Explain the role of the Consumer Price Index (CPI) in India’s monetary policy framework. How does CPI-based inflation impact various sections of the economy?


 
 
 

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