1. ‘New Consumer Price Index series to have little impact on inflation reading’

‘New Consumer Price Index series to have little impact on inflation reading’

The new Consumer Price Index series, with 2012 as the base year, is expected to have marginal impact on the next reading...

By: | Mumbai | Published: January 25, 2015 1:29 PM

The new Consumer Price Index series, with 2012 as the base year, is expected to have marginal impact on the next reading of inflation, mainly on account of lower weight for food and beverages, say analysts.

The government last week said it will have new base year for the CPI inflation series, 2012, and the first revised series would be compiled for January. The reading for that month will be released on February 12.

According to SBI Research, the new CPI inflation, based on the consumer expenditure survey (CES) 2011-12 is expected to be in line with the earlier one (with base 2010) which was computed on the basis of CES 2004-05.

“The impact will be marginal. This is primarily due to reduced weight of food and beverages in the new index,” SBI Research said in a report.

It added that in a declining inflation scenario, the new headline CPI may be higher than current CPI by 5 basis points. On the other hand, in an increasing inflation trajectory, the new headline CPI may be lower than current CPI by around 8 basis points.

In December, retail inflation accelerated to 5 per cent from 4.38 per cent in November.

The Central Statistics Office has been releasing the current CPI series for rural, urban and combined, at state/UTs and national level, since January 2011.

In the new series, weight of food and beverages would be 45.86, as against 47.58 in 2010 series for national index.

The weight of fuel and light segment would be 6.84 in the new series which is 9.49 in the 2010 series.

However, the weight of clothing and footwear segment would be increased to 6.53 from 4.73.

For housing too it will be increased to 10.07 from 9.77.

The weight of pan, tobacco and intoxicants will be increased to 2.38 from 2.13.

Similarly, the weight of miscellaneous component, that usually captures the service sector pressures, has increased to 28.32 from 26.31 in the last series.

The core inflation gauge, which excludes food and fuel indices, will see a slight increase in its weight in the new CPI dataset to 47.3 per cent as compared to the old series.

Singaporean brokerage DBS Bank said: “It is unlikely to have much of an impact on the next month’s CPI inflation reading, given the modest shift out of the headline and into the core basket.

“To some extent, this signals more emphasis on demand-led forces rather than cost-push pressures.”

In the 2012 series, the number of priced items has been changed from 437 to 448 in rural and from 450 to 460 in urban at all India level.

In the revised series, 11 new priced items have been added, without dropping any item, in rural sector at all India level. In case of urban, 7 priced items have been dropped and 17 new priced items have been added.

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