The Indian government is going to make a big change in the way of measuring inflation. In the new Consumer Price Index (CPI) series, the weightage of food items will be reduced to 36.75%, which is currently 45.86%. This may reduce the fluctuations in inflation figures and it will become easier for the Reserve Bank (RBI) to decide the policy related to interest rates.
Why are changes being made?
Food prices are highly dependent on weather, supply disruptions and production. Therefore, there are sharp fluctuations in them, which have a direct impact on the inflation figures. By reducing the weightage of food, headline inflation is expected to remain more balanced. At present, RBI considers CPI as the basis for keeping inflation within the target range of 4% (plus-minus 2%).
The old basket is no longer a reality
The CPI basket currently in use is based on the consumer spending pattern of 2011-12. Economists say that there has been a big change in people’s lifestyle and spending habits in the last decade. For this reason, the correct picture could not be obtained from the old basket.
2024 will become the new base year
According to the Statistics Ministry, 2024 will be considered as the base year in the new CPI series. At the same time, 2025 will be kept as an overlapping year, so that old and new data can be linked together. Also, the number of major categories of expenditure will be increased from 6 to 12, which will bring India’s inflation structure closer to international standards.
Now more space for service sector
In the new system, the weightage of housing, water, electricity, gas and fuel will be 17.66%, making it the second largest sector affecting inflation. For the first time, rent of rural houses has also been included in CPI. Transport (8.8%), health (6.10%) and clothing-shoes (6.38%) will also have a significant contribution. Service categories like restaurants, education and information communication will also become more important now.
E-commerce prices will also be included
For the first time, prices of online platforms will also be added to the CPI. This will include air tickets, OTT subscription, telecom plans and some services. With this, the inflation data will be able to show the expenditure of common people in a better way. Overall, the new CPI series is expected to calculate inflation to be more modern, balanced and closer to actual expenditure.