<p class="bodytext">In the new series of Consumer Price Index (CPI), there is a well-directed effort towards an accurate representation of consumption habits. With 2024 as the base year, as against 2012 of the previous series which reflected the consumption patterns of 2011-12, the new series takes the parameters closer to contemporary realities. The update is based on consumption patterns reported by the Household Consumption Expenditure Survey 2023-24. The effectiveness of CPI, which provides an important measure of the economy and is a tool for policy-making, hinges on the way it captures the changes in the economy. The new series has increased the number of items covered from 299 to 358 – goods from 259 to 308 and services from 40 to 50. It collects data from 1,465 rural markets, up from 1,181, and from 1,395 urban markets as against 1,114. Data from online marketplaces has also been collected.</p>.<p class="bodytext">The new series has reduced the weightage of food and clothing and increased the weightage of electronics, housing, and services. When 60% of the population receive free food grains, their prices are no longer a decisive component of household expenditure. An unrealistic weightage for food items was seen as distorting the CPI, making it volatile. Accordingly, the weightage of food and beverages in the overall CPI has been reduced from 45.86% to 36.75%. The new categories in the index include furnishings, household equipment and maintenance with a weightage of 4.47%, information and communication with 3.61%, recreation, sport, and culture with 1.52% and personal care, social protection, and miscellaneous goods and services with 5.04%. These entries reflect the increasing share of these categories in household expenditure and are pointers to the changing needs and spending behaviour of people.</p>.<p class="bodytext">Retail inflation stood at 2.75% in January on an annual basis under the new CPI series, compared with 1.33% under the old series in December last year. But a comparison along these lines has limitations because the ingredients considered are different. Apart from being more representative, the new CPI is expected to be more stable and predictable. It is likely to provide more reliable data for economic decision-making, including budgeting, decisions by the Reserve Bank of India (RBI) on policy rates, and for all financial processes that involve linking to the index, such as dearness allowance decisions. The new CPI series marks a shift towards more pragmatic policymaking. It is a welcome move by the government, strengthened by its decision to revise the base year of CPI and other economic indicators every 3-5 years.</p>
<p class="bodytext">In the new series of Consumer Price Index (CPI), there is a well-directed effort towards an accurate representation of consumption habits. With 2024 as the base year, as against 2012 of the previous series which reflected the consumption patterns of 2011-12, the new series takes the parameters closer to contemporary realities. The update is based on consumption patterns reported by the Household Consumption Expenditure Survey 2023-24. The effectiveness of CPI, which provides an important measure of the economy and is a tool for policy-making, hinges on the way it captures the changes in the economy. The new series has increased the number of items covered from 299 to 358 – goods from 259 to 308 and services from 40 to 50. It collects data from 1,465 rural markets, up from 1,181, and from 1,395 urban markets as against 1,114. Data from online marketplaces has also been collected.</p>.<p class="bodytext">The new series has reduced the weightage of food and clothing and increased the weightage of electronics, housing, and services. When 60% of the population receive free food grains, their prices are no longer a decisive component of household expenditure. An unrealistic weightage for food items was seen as distorting the CPI, making it volatile. Accordingly, the weightage of food and beverages in the overall CPI has been reduced from 45.86% to 36.75%. The new categories in the index include furnishings, household equipment and maintenance with a weightage of 4.47%, information and communication with 3.61%, recreation, sport, and culture with 1.52% and personal care, social protection, and miscellaneous goods and services with 5.04%. These entries reflect the increasing share of these categories in household expenditure and are pointers to the changing needs and spending behaviour of people.</p>.<p class="bodytext">Retail inflation stood at 2.75% in January on an annual basis under the new CPI series, compared with 1.33% under the old series in December last year. But a comparison along these lines has limitations because the ingredients considered are different. Apart from being more representative, the new CPI is expected to be more stable and predictable. It is likely to provide more reliable data for economic decision-making, including budgeting, decisions by the Reserve Bank of India (RBI) on policy rates, and for all financial processes that involve linking to the index, such as dearness allowance decisions. The new CPI series marks a shift towards more pragmatic policymaking. It is a welcome move by the government, strengthened by its decision to revise the base year of CPI and other economic indicators every 3-5 years.</p>
