​Overdue upgrade: On the new series of the Consumer Price Index Politics & News

The new series of the Consumer Price Index (CPI), released on Thursday, has addressed the many shortcomings of the previous series. The new series has a base year of 2024, and is pegged to consumption patterns from the Household Consumption Expenditure Survey 2023-24. The previous series had a base year of 2012 and was based on consumption patterns of 2011-12. As Chief Economic Adviser V. Anantha Nageswaran noted, India has changed markedly over the last decade or so, including consumption behaviour and the composition of household expenditure. For example, 80 crore households receive free foodgrain now, which naturally reduces how much they need to spend on food. Simultaneously, several new service offerings have emerged, such as over-the-top (OTT) video streaming, and online marketplaces. The new series commendably tries to address these changes. The weightage of food and beverages in the overall CPI has been reduced to 36.75% from the earlier 45.86%. This is significant since food inflation was having an outsized influence on the overall CPI, despite forming a shrinking part of households’ monthly expenditures. The index also covers more items, increasing its granularity and representativeness. Notably, this increase includes a larger number of goods and services. India’s service economy is growing faster than the economy’s average growth rate, and so price levels here are an increasingly important factor. The new index also collects data from more marketplaces across the country, and, for the first time, includes 12 online marketplaces.

More accurate inflation data have several implications for macroeconomic stability and monetary and fiscal policy. Food inflation in India is notoriously volatile, quickly reflecting supply bottlenecks as well as the vagaries of the weather. A more realistic weightage for food in the CPI stands to make the overall index more stable. This, in turn, can increase predictability in Budget-making, since some aspects are linked to the CPI, such as inflation-indexed dearness allowance and dearness relief. As far as monetary policy is concerned, an updated CPI gives the Reserve Bank of India’s Monetary Policy Committee a more accurate picture of inflation as it decides the various policy interest rates. At the moment, MoSPI provides a ‘linking factor’ and leaves it to the public to calculate how earlier inflation data would have looked like under the new methodology. It should, instead, provide the back data itself, to ease comparative analysis. It should also stick to its plan to revise the CPI every five years, and not wait another 11 years to update it.