CPI update: Lower weightage on food, new base year

Surabhi Posted online: Thursday, Dec 26, 2013 at 0000 hrs
New Delhi : The government is working on an updated consumer price index to measure retail inflation that would have a lesser weightage for food prices.

The new CPI with a base year of 2012 would reflect the results of the NSSO household consumption expenditure survey between July 2011 and June 2012.

“There were noticeable changes in consumption patterns in the NSSO 68th round survey which revealed that food items no longer dominating household budgets. This will be incorporated in the updated CPI,” said a senior government official. Instead, the updated CPI, expected to be released next year, will give higher weights to fuel, durables and education.

Interestingly, the new index is also likely to give a higher weight to prepared meals as more and more households are eating out now. “Within the food category, packed food and restaurants seem to be gaining traction,” the official said.

According to the NSSO survey, the average rural Indian, food accounted for 52.9 per cent of the value of consumption during 2011-12 while in the case of an average urban Indian, 42.6 per cent of the value of household consumption was accounted for by food.

However, the current CPI has a base year of 2010. It gives a weight of 59.31 per cent to food items for measuring retail inflation in rural areas and a corresponding weight of 37.15 per cent in urban areas. The combined weightage to food items is 49.71 per cent.

Experts believe that a lower weightage to food inflation could translate into lower headline CPI inflation giving some respite to the government. “One would expect overall CPI inflation to come down marginally as food is one segment that has witnessed high price increase in the past few months,” said NR Bhanumurthy, an economist at NIPFP.

Retail inflation in November stood at 11.24 per cent with food inflation at a much higher 14.72 per cent.

Agreed DK Joshi, chief economist, Crisil, “In the current situation, where food prices are high, it will bring down overall CPI inflation. But in the long run, an updated index will give a more accurate measurement and will be closer to reality.”