Written by Siddharth UpasaniNew Delhi | November 7, 2025 04:57 AM IST 4 min readThe 8th CPC could completely upend India’s headline inflation number if not for the changes proposed by the Ministry of Statistics and Programme Implementation (MoSPI).Late last month, two key decisions were announced by the government. First, on October 28, the terms of reference of the 8th Central Pay Commission (CPC) were approved by the Union Cabinet, with the Commission given 18 months to submit its recommendations. Two days later, the Statistics Ministry released a discussion paper seeking feedback on the changes it wants to make in how housing inflation is calculated as part of the exercise to revamp the Consumer Price Index (CPI).The two issues might look unrelated; after all, what could possibly link the revision of pay and pensions of Central government staff and a component of retail inflation? As it turns out, the 8th CPC could completely upend India’s headline inflation number if not for the changes proposed by the Ministry of Statistics and Programme Implementation (MoSPI).Measuring housing inflationTo measure inflation for housing — which has a weight of 10.07 per cent in the current CPI basket — the Statistics Ministry surveys more than 13,000 homes across over 300 towns. Of these, more than an eighth are homes given by the Central and state governments and public sector undertakings (PSUs) to their employees. And this is where the problem starts, for MoSPI uses the House Rent Allowance (HRA) foregone by those living in these homes — along with a small licence fee that is paid — as a substitute for the rent that they pay to calculate housing inflation.Explained | Eighth Pay Commission terms of reference approved: What this means, likely impact on salaries, pensions of govt employeesHRA does not depend on demand and supply but the person occupying the house. If one government or PSU staffer leaves the house surveyed by MoSPI and is replaced by a somewhat junior employee, the HRA reduces, leading to a fall in inflation — even though nothing has changed, apart from the occupant. The HRA also changes when government staff’s salaries are revised, as the 8th CPC would do. When this happens, the result can be rather disorienting, not just for investors but even for policymakers — which was the case eight years ago.Chaos of 7th CPCIn June 2017, housing and headline CPI inflation stood at 4.7 per cent and a record low of 1.46 per cent, respectively. Then, starting July 2017, the recommendations of the 7th CPC, including a 105.6 per cent rise in the HRA of Central government staff, came into effect. The result? By June 2018, housing inflation stood at 8.45 per cent and overall CPI inflation at 4.92 per cent — all because of a stroke of a pen, or higher HRA, because on the ground, housing inflation did not actually double over the course of a year. Policymakers from the RBI reacted the only way they could — by ignoring this rapid increase in inflation.It took another year or so, until mid-2019, for housing inflation to cool down below 5 per cent. Since then, it has trended below 4 per cent — something else which does not reflect reality. In the six quarters starting January 2024, CPI housing inflation has averaged 3 per cent. Meanwhile, home prices as per the RBI’s quarterly House Price Index have risen 6 per cent and property firm MagicBricks’ Rental Index has risen 20 per cent on average every quarter.Proposed changesTo take care of these issues, the MoSPI has proposed to make some drastic changes to how it calculates housing inflation for when the new CPI series will be released starting February.Story continues below this adFor one, government accommodations and employer-provided homes will be excluded. Two, rent data will be collected on a monthly basis instead of every six months. Finally, housing inflation will also be compiled for rural areas. “With the 8th CPC likely to submit its recommendations within the next 18 months… the new composition of the housing CPI is relevant,” Nomura economists said in a note last week. And while housing inflation may be higher from next year, it will be because data is “ultimately more representative of rental inflation on the ground”.Siddharth Upasani is a Deputy Associate Editor with The Indian Express. He reports primarily on data and the economy, looking for trends and changes in the former which paint a picture of the latter. Before The Indian Express, he worked at Moneycontrol and financial newswire Informist (previously called Cogencis). Outside of work, sports, fantasy football, and graphic novels keep him busy. ... Read More© The Indian Express Pvt LtdTags:CPI inflation