Why in the News?
India’s new Consumer Price Index (CPI) series with 2024 as the base year will reduce the weight of food and beverages to about 37 percent from nearly 46 percent, reflecting updated household consumption patterns released by Ministry of Statistics and Programme Implementation.
What is CPI?
- CPI measures retail inflation faced by households
- Used by Reserve Bank of India for monetary policy decisions
- Forms the basis of inflation targeting at 4 percent within a 2 to 6 percent band
Key Changes in the New CPI Series
- Food and beverages weight reduced
- From 45.86 percent to 36.75 percent
- Housing weight increased
- From 10.07 percent to 17.66 percent
- CPI basket expanded
- From 299 items to 358 items
- Based on 2023–24 Household Consumption Expenditure Survey
Why is Food Weight Being Reduced?
- Reflects Engel’s Law, which states that as income rises, the share of spending on food falls
- Rural food share declined from 52.9 percent to 47.04 percent
- Urban food share declined from 42.62 percent to 39.68 percent
- Lower food weight is expected to reduce volatility in headline inflation
Implications for Inflation and RBI
- High food weight earlier caused sharp swings in CPI due to supply shocks
- New weights may lead to
- Slightly higher CPI when food inflation is low
- Lower CPI when food inflation is high
- Makes CPI more aligned with current consumption realities
- Supports smoother monetary policy transmission
Rising Importance of Housing
- Housing category expanded to include
- Water, electricity, gas and other fuels
- Higher urban spending on rent reflected
- Methodological changes may lead to higher measured housing inflation
| [2020] Consider the following statements:
1. The weightage of food in Consumer Price Index (CPI) is higher than that in Wholesale Price Index (WPI) 2. The WPI does not capture changes in the prices of services, which CPI does 3. Reserve Bank of India has now adopted WPI as its key measure of inflation and to decide on changing the key policy rates Which of the statements given above is/are correct? (a) 1 and 2 only (b) 2 only (c) 3 only (d) 1, 2 and 3 |
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