New CPI Series to Enhance Policy Making with Updated Consumption Data
Chief Economic Advisor V Anantha Nageswaran announced on Thursday that the newly introduced Consumer Price Index (CPI) series will significantly improve the quality of data utilized in formulating both monetary and fiscal policies. This enhancement stems from the index's better reflection of current consumption patterns and prevailing economic conditions.
Updated Basket and Weights Based on Recent Survey
The National Statistics Office (NSO), operating under the Ministry of Statistics & Programme Implementation (MoSPI), has launched the new CPI series with a base year of 2024=100. This revision involves expanding the basket to incorporate a broader range of goods and services while removing items that are no longer widely consumed. Additionally, the weights of various item groups have been recalibrated using data from the Household Consumption Expenditure Survey (HCES) conducted in 2023-24.
"Since the CPI basket is now aligned with recent expenditure data, the inflation signals derived from this will be more closely matched with the economic conditions. This improves the information basis for calibrating monetary and fiscal policy," Nageswaran stated during a press conference on the new CPI series, as reported by PTI.
Broader Coverage and Policy Implications
Nageswaran emphasized that the new series offers policymakers a more updated foundation for assessing real incomes, consumption trends, and purchasing power, thanks to its wider coverage of services and digital markets. The Reserve Bank of India incorporates retail inflation into its bi-monthly monetary policy decisions, making this update crucial.
He further explained that if CPI volatility decreases, fiscal expenditures, Dearness Allowance (DA) fixation, and index-linked bonds—all tied to CPI—would become more stable, predictable, and reliable. This stability is expected to benefit economic planning and public finance management.
Shift in Food Basket Weight and Economic Diversification
A notable change in the new series is the reduction in the weight of the food basket from 45.86 in the CPI 2012 series to 36.75. This decline partly results from reallocating some items to other categories, such as restaurants and services.
"At the macro level, this reflects a progressive diversification of expenditure towards health, education, mobility, and connectivity, which is what you would expect to see from an economy which is seeing rising incomes and rising living standards," Nageswaran commented.
He added that the lower weightage for the typically volatile food and beverages group could lead to less volatile headline inflation. Such rebalancing is commonly associated with income growth, productivity gains, and improving living standards, indicating positive economic development.
Emphasis on Services and Digital Channels
The revised CPI basket underscores the increasing role of services in overall consumption. "This brings consumption measurement closer to the evolving structure of output and employment, where services account for a rising share of economic activity," Nageswaran noted.
Moreover, the new series acknowledges the growing influence of digital channels in price formation. It will also enhance the ability to distinguish between urban and rural inflation trends at state, subclass, and item levels, providing more granular insights for targeted policy interventions.
Alignment with Global Best Practices
Nageswaran concluded by highlighting that the new CPI series, along with upcoming revisions to the Gross Domestic Product (GDP) and Index of Industrial Production (IIP) bases, will align India's statistical framework with global best practices. This alignment is expected to bolster the credibility and accuracy of India's economic data on the international stage.
