Why India’s Ultra-Low Inflation Numbers Don’t Match Household Reality

India’s retail inflation figure of 1.33% for December 2025 appears, on paper, to mark a remarkable easing of price pressures. Yet for most households, this number feels disconnected from lived experience. The December data also marks the end of the Consumer Price Index (CPI) series with a 2012 base year, before a long-overdue revision kicks in from January 2026. The gap between official inflation and what people actually feel has rarely been starker—and it raises important questions about how India measures price rise and how policymakers interpret it.

A statistically low number, but a strange one

At 1.33%, December 2025 inflation was not just low—it was among the lowest readings since the current CPI series began. While it was technically a three-month high, that distinction is largely academic. For the April–December 2025 period, inflation averaged just 1.7%, sharply lower than the 4.9% recorded in the same months of 2024.

Yet macroeconomic behaviour does not seem to align with such benign inflation. The government’s first advance estimates for GDP growth indicate that private consumption growth has slowed compared to last year. Typically, when inflation falls sharply, households have more purchasing power and consumption tends to rise. That this has not happened suggests a disconnect between headline inflation and everyday price pressures.

What households say inflation really is

The divergence becomes clearer when viewed through perception-based data. According to the December round of the inflation expectations survey conducted by the Reserve Bank of India, households believe inflation is running at 6.6%. More strikingly, they expect it to rise to 7.6% over the next three months and to 8% over the coming year.

These expectations matter because they shape spending and saving decisions. If households believe prices are rising faster, they tend to cut discretionary spending, even if official data suggest inflation is under control. In that sense, inflation expectations may be more relevant for economic momentum than the headline CPI number itself.

The limits of a single national inflation figure

All inflation indices face a basic conceptual challenge: compressing a vast array of price movements into a single number. India’s CPI aggregates data from urban and rural markets spanning diverse regions—from Kashmir to Kerala—each with distinct consumption patterns and price dynamics. Inevitably, nuances are lost.

However, India’s problem is compounded by the age of the CPI framework itself. The weightages assigned to food, fuel, housing, transport, education, and other categories are based on consumption patterns from 2012. Over a decade later, household spending has changed dramatically—shaped by urbanisation, digital services, changing food habits, and, crucially, the expansion of central and State subsidies.

Why outdated weights distort lived inflation

An inflation index reflects reality only to the extent that its weights mirror how people actually spend their money. Subsidised food grains, free electricity slabs, public health schemes, and targeted cash transfers have altered household budgets, especially for lower-income groups. At the same time, spending on services such as education, healthcare, transport, and digital connectivity has risen.

When weights do not reflect these shifts, price changes in items that matter most to households may be underrepresented, while those that matter less still exert disproportionate influence on the headline number. This can result in official inflation falling even as households feel their cost of living rising.

The transition to a new CPI series

This is why the upcoming CPI revision is significant. On February 12, the government will release January inflation data using a new CPI series with a 2024 base year. The revised index will draw on the Household Consumption Expenditure Survey 2023–24 to recalibrate weights and better reflect current spending patterns.

Such revisions are routine internationally but have been delayed in India, allowing distortions to accumulate. Updating the base year is not about producing higher or lower inflation numbers—it is about producing more credible ones.

Why this matters for policy credibility

Inflation data guide interest-rate decisions, fiscal planning, and welfare policy. If official numbers systematically understate price pressures felt by households, policymakers risk misreading economic stress and responding too late or too weakly. The credibility of economic management depends not just on statistical rigour, but on whether numbers resonate with public experience.

As India moves to a new CPI series, the hope is that inflation data will once again serve as a reliable bridge between economic statistics and everyday reality—rather than a source of confusion between what the numbers say and what households feel.