inflation rate
The method of measuring inflation in the country is going to change. A new series of Consumer Price Index (CPI) will be released on February 12, which will determine how expensive things are becoming in the everyday life of the common man. This time the change is not just about the figures, but about the way in which our consumption is understood. This is the reason why some states may get relief while some may experience higher inflation.
The biggest change has happened in the weight of food items. Earlier the share of food in the CPI basket was about 46 percent, but in the new series it may come down to about 37 percent. This means that the impact of food prices on headline inflation figures will no longer be as strong as before. This change reflects increasing income, changing lifestyle of people and increasing expenditure on services.
Why did the share of food category decrease?
However, it is important to understand one important thing here. The share of food has decreased not only because people are eating less food, but also because the method of measurement has changed. Now prepared meals and snacks have been removed from the food category and put into a new category called Restaurant and Café Services. Earlier this expense was included in food. Therefore, on paper the weight of food will appear to have reduced, but the actual cost has not reduced that much.
The weight of prepared meals and snacks in the new basket is about 3 percent more. If it is added back to the food, the actual food portion comes to around 40 percent. That means there is definitely a decline, but not as big as it appears at first glance.
How will it affect inflation?
Now the question is how will it affect inflation. If vegetables, grains or pulses become expensive, their impact on the total CPI will now be slightly less visible. But if the prices of eating out, hotels or cafes increase then it will show its impact through inflation of services. This means that the center of inflation may gradually be seen shifting from food to services.
In which state will inflation increase more?
Talking about states, its impact can be especially visible on Kerala. The share of non-food items is high in the expenditure basket of the people there. Services, health, education, transport, fuel, house rent and lifestyle related expenses hold more importance there. In Kerala, the weight of non-food reaches about two-thirds, which is more than many other states. In such a situation, if the prices of services increase then inflation in the state may remain high, even if food prices in the country soften.
The demand for gold is also very high in Kerala, because there is a strong tradition of buying gold for remittance and cultural reasons. If gold prices rise, its impact may be more visible on the inflation in the state. Similarly, the importance of coconut and its related products is also more as compared to other states. The direct impact of changes in weather or international prices can be felt there. The combined weight of gold and coconut is also very important in the new series, due to which the inflation pattern may appear different in states like Kerala and to some extent Telangana.
Can inflation reduce here?
On the contrary, the situation in states like Bihar may be different. The share of food there is still more than 50 percent. If food prices remain stable or fall, the inflation figures there may remain relatively low. The impact of softening food prices in recent months can provide relief to such states.
The new CPI series is not just a change in the data, but it shows that the country’s consumption picture is changing. The impact of things like growing service economy, lifestyle expenditure and gold in cities will now be more visible in the inflation calculations. For the common man, this means that in future the inflation figures will have to be understood in a slightly different way because now the game has spread not just to the kitchen but to restaurants, hospitals and schools.
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