RBI Must Address Growing Discrepancy Between Reported and Felt Inflation

Q: How does the new CPI improve inflation measurement?

The new Consumer Price Index includes **358 items** and uses detailed consumption data from the Household Consumption Expenditure Survey, allowing for a more accurate reflection of consumer behavior.

Original: The gap between reported and felt inflation is about to widen: RBI should take note

Mint•Apr 2, 20265 min

In a Nutshell

The Reserve Bank of India (RBI) faces a widening gap between reported inflation and consumer experiences, particularly in light of rising LPG prices due to geopolitical tensions. As the February inflation rate stood at 3.2%, the informal market saw LPG prices spike five-fold, highlighting the inadequacies of a single inflation rate in capturing localized economic realities.

Key Points

01February inflation reported at 3.2%, but LPG prices surged in the informal market.
02New Consumer Price Index (CPI) series includes 358 items, improving data granularity.
03LPG prices are crucial for many households and small-scale industries, affecting overall inflation perception.
04Domestic LPG production is set to increase by 25%, but reliance on imports remains high.
05Climate events have further complicated inflation dynamics, impacting food supply.

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Full Summary

On 12 March, the Reserve Bank of India (RBI) reported an inflation rate of 3.2% for February, coinciding with the escalation of conflict in West Asia. This geopolitical tension led to severe price hikes in liquefied petroleum gas (LPG), with informal market prices increasing five-fold compared to regulated prices. The disparity between reported inflation and consumer experiences underscores the limitations of a single inflation rate, which aggregates diverse goods and services. The new Consumer Price Index (CPI), introduced in February 2026, now covers 358 items, providing a more detailed picture of consumption patterns across rural and urban sectors in India. Despite this improvement, the weight of LPG in the CPI is only 1.9814%, meaning its price spikes may not significantly affect the overall inflation rate. However, the rising cost of oil and a depreciating rupee are expected to elevate the headline inflation rate. Statements from government officials indicate a 25% increase in domestic LPG production capacity, yet the country remains reliant on imports, primarily through the Strait of Hormuz. Adverse weather conditions have further exacerbated supply issues, indicating that perceived inflation may outstrip reported figures, necessitating careful monitoring by the RBI.

Key Figures

3.2%

February inflation rate

25%

Increase in domestic LPG production capacity

5-fold

Increase in informal market LPG prices

1.9814%

Weight of LPG in the national CPI

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Why It Matters

The rising LPG prices directly affect household budgets, particularly for those reliant on gas for cooking. Increased inflation could lead to higher costs for essential goods, straining consumer finances.

Who is affected

Households relying on LPG for cooking, small-scale manufacturers using LPG as an input.

What to know

Consumers should monitor fuel prices and adjust budgets accordingly; policymakers need to explore alternative energy sources.

FAQ

The rise in LPG prices is largely attributed to geopolitical tensions in West Asia, which have disrupted supply chains and increased costs.

The new Consumer Price Index includes 358 items and uses detailed consumption data from the Household Consumption Expenditure Survey, allowing for a more accurate reflection of consumer behavior.

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