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

Consumers were forced to turn to the informal market, where the price had risen five-fold by 12 March, relative to the regulated price even without the Ujjwala price subsidy. Retail agencies later re-opened to long lines and police protection.

There was a massive gap between the official inflation rate and the fuel price spike. This kind of dissonance between reported and experienced inflation is intrinsic to the nature of a single inflation rate, which is a weighted average over a diverse array of consumable goods and services. In the LPG case, it arose also because war in West Asia broke out during the interval between data collection and the issue date of February inflation.

Before going any further, a few comments are in order about the new Consumer Price Index (CPI) series, which made its debut in February 2026 along with the new GDP series. Both are a magnificent improvement over what they replaced. The new CPI covers 358 items, up from 299 in the old series.

For each of these 358 items, the ‘unit-level’ weights (which then get aggregated upto divisions like food and beverages) were obtained from the national Household Consumption Expenditure Survey of 2022-23.

I salute the team that generated the unit-level weights separately and additively for rural and urban sectors for each of 28 states and eight Union territories, summing to 100 at the national level across all items. These weights yield a portrait of what we consume based on where we live.

We have never had this kind of granular information on consumer expenditure by location before.

The item ‘LPG cylinder and piped natural gas’ (code 04.5.2.2.1.01) lumps piped natural gas (PNG), which has not risen in price so far, with LPG. PNG requires piped infrastructure in place, whereas LPG in cylinders is more widely accessible.

LPG is also an input for several small-scale manufacturing processes, whose products will accordingly rise in price. Registered LPG customers number 330 million, as against a mere 10 million active PNG connections.

A welcome initiative in the new CPI series is the listing every month of five items at each end of the inflation rankings. Cooking gas will feature on the list at the high end in the March figures issued on 12 April, unless price quotations are not taken from informal markets. But with a weight of only 1.9814% in the national weighting diagram, even the informal market price spike will not cause more than a blip in the overall inflation rate.

The headline rate itself will of course rise as the increase in the price of oil works its way into most products, notwithstanding the excise cut on petrol and diesel, and there is also the impact on the general price level of the fall in the rupee exchange rate against the dollar.

In February, the five lowest (negative) inflation champions were garlic, onions and potatoes, but the five highest inflation rate items were coconut, tomato and cauliflower, also needed for the family pot. Food and fuel are swept out in core inflation, but these are the very products essential enough to crowd out other needs, and thereby dominate public perception. Cooking gas for those without firewood or kerosene options is utterly essential.

Statements in Parliament by the Prime Minister and finance minister, starting from 17 March, that domestic LPG production capacity will be ramped up by 25% and priority given to households have assuaged extreme cooking fuel anxiety. But by admitting that two-thirds of our LPG needs are met by imports, 90% of which comes through the Strait of Hormuz, the problem was not minimized.

If Iran levies a toll, expected at $2 million on each large tanker of oil or LPG passing through Hormuz, India should seek a waiver on the grounds of having been a Shia sanctuary for centuries.

T.K. Arun has written persuasively of long-run policy options, most promisingly coal gasification, taking advantage of our large coal reserves in a manner compatible with climate action. Another alternative is surely biogas, which is one of the 358 items, with its own unit code (04.5.4.9.1.02).

However, biogas adds up to a mere 0.0137% in the national weighting diagram, with an above-zero presence in nine states and one Union territory. In only four states (namely Gujarat, Maharashtra, Kerala and Tamil Nadu) does it carry a weight greater than 0.001%. But these are weights in household consumption. Biogas has high potential as an input for commercial activities, especially near large-scale dairy plants.

The demons of climate change and war are upon us. Heartland food-bowl states were lashed by rain and hail storms over 18-20 March, destroying harvest-ready winter crops, including vegetables. With domestic supply shocks from adverse climate events piling onto fuel shocks, the monetary policy committee of India’s central bank would have to acknowledge, even as the headline inflation rate rises, that perceived inflation will be even higher.

The author is an economist.