Why Inflation Feels Higher Than It Looks

What if the numbers we trust the most are the ones that mislead us?

Each month, as macroeconomic reports roll out and inflation figures are declared ‘under control,’ a quiet contradiction plays out across the country. Grocery bills are growing, school fees keep rising, medical expenses mount. Yet, the official data offers reassurance. In April 2025, India’s Consumer Price Index (CPI) reported a headline inflation rate of 4.83% (provisional) comfortably within the Reserve Bank of India’s 2–6% tolerance band. So why does the average Indian household feel increasingly financially constrained?

The disconnect lies in the gap between actual inflation and perceived inflation. The Consumer Price Index, based on a decade-old consumption basket, averages prices across income groups, regions, and lifestyles but people live in specifics, not averages. A household earning ₹20,000 a month may spend over 70% of it on food, fuel, and basic services. For them, a spike in tomato or rice prices is not a minor fluctuation, it’s a crisis. Yet CPI calculations often dilute such micro-level shocks, as price drops in less essential or luxury goods (like TVs or air travel) smooth out the overall index. This tension between micro and macro becomes more visible when localised inflation is examined. In April, tomato prices surged over 26% in parts of Maharashtra, potatoes by 24% in eastern UP, and eggs by 18% in Bengaluru. These aren’t statistical outliers; they’re signs of climate stress, weak supply chains, and regional volatility. When repeated across districts and demographics, they add up to a macroeconomic undercurrent the CPI only partly reflects.

Meanwhile, non-discretionary costs like education and healthcare continue to climb. School fees in Tier 1 and Tier 2 cities rose by 12–16%, and health insurance premiums jumped 11% this year yet the CPI registers only modest increases around 5–6%. Similarly, rising diesel prices may not immediately move the inflation needle, but they cascade into transport fare hikes, higher delivery costs, and pricier perishables hidden inflation felt more acutely in small towns and working-class neighbourhoods. This disconnect between data and experience has serious policy implications. If inflation is underestimated, then welfare interventions may be misaligned, wage revisions may lag, and monetary policy may tighten prematurely. Moreover, when the public begins to perceive a gap between official statistics and everyday realities, trust in institutions erodes. Economic anxiety grows not only from rising prices but also from the perception that no one is listening or measuring accurately. To respond meaningfully, India must rethink the way it monitors inflation. This calls for a layered, more adaptive index that incorporates class-differentiated consumption patterns, regional volatility, and modern spending behaviours, including digital and service-based costs. Real-time data drawn from households, local markets, and digital platforms must complement traditional surveys to create a holistic picture of inflation as it is lived, not just calculated.

As Abhijit Banerjee observed, “Economic indicators should mirror human reality, not obscure it.”

Until we align our measurements with that principle, inflation will remain not just a number, but a source of quiet, unresolved economic distress. And until then, one question will continue to linger across households and communities: If inflation is under control, why doesn’t it feel like it?

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