A new Consumer Price Index (CPI) series, using 2024 as the base year, is scheduled for release on Thursday. Ministry of Statistics and Programme Implementation Secretary Saurabh Garg spoke to Kuldeep Singh about the new series’ salient features.
With the existing CPI series concluding and the new series commencing soon after, what bridging measures will ensure a smooth transition for users?
To ensure continuity and analytical consistency, the CPI 2024 series will be released along with back-series data at All India for General Indices. In addition, a linking factor bridging the two series will be released to facilitate a smooth transition for users and enable comparison across the old and new series.
Food and beverages weight declines to about 36.75% from 45.86% in the new series. How is this expected to affect headline inflation volatility?
This difference largely arises from a misinterpretation of the numbers. It is correct that in the 2012 series, the share of Food and Beverages was 45.86%. It is to clarify that if the old classification system were followed, the share of Food and Beverages would have declined from 45.86% to 40.10%.
As per the new classification, the share of Food and Beverages, which currently stands at 36.75% for 2024 series, would have been around 42.62% for the 2012 series. In the new CPI series, the Classification of Individual Consumption According to Purpose (COICOP) 2018 framework has been adopted. Under the earlier series, expenditure was grouped into only six broad categories i.e. Food and Beverages; Pan, Tobacco and Intoxicants; Clothing and Footwear; Fuel and Light; Housing; and Miscellaneous. In contrast, the new classification consists of 12 divisions at the first level of hierarchy. As a result, certain expenditure items that were earlier included under Food and Beverages have now been reclassified under categories such as Restaurants and Services, leading to a redistribution of weights across divisions.
Further, rural housing has been included in the current series, which was not covered earlier. Additionally, there have been actual shifts in household expenditure patterns, with increased spending on housing, services, and transport, as reflected in the latest Household Consumption Expenditure Survey (HCES).
Can you specify the major items or sub-categories that shifted out of food & beverages? What portion of the nine-percentage point drop in their windex eight is due to reclassification versus genuine changes in household spending patterns?
The main change is the creation of a separate category for restaurants and accommodation services. Items like eating out and catering services, which were earlier classified under food and beverages, have now been moved to this new category. If we retain the old classification for comparison, the actual drop in food & beverages would be around 5 % (from 45.8% to 40.1%). Looking specifically at household-consumed items, excluding the reclassified part, it has fallen from around 42.6% to 36.7%, which is about a 6%. The balance of the drop is due to reclassification.
There are concerns that the new series might structurally underplay cost-of-living pressures for the poorest households, who still spend 45-50% on food in rural areas. How do you respond to this?
The weight distribution is based entirely on the Household Consumption Expenditure Survey (HCES) 2023-24, just as the previous basket (2012) was based on a similar survey. There is no change in the methodology for determining weights. These weights simply reflect the actual changes in consumption patterns. Over the past 10+ years, consumption levels have nearly doubled, reflecting improved socio-economic status. In food & beverages specifically, the largest reduction is in pure cereals (rice and wheat), which is now nearly half of what it was earlier. Households are now spending much more on fruits, fresh vegetables, milk products, fish, meat, etc. This shift is visible across all areas (rural and urban) and reflects real changes in consumption patterns nationwide. Therefore, there is no bias in the estimates.
The Expert Group recommends excluding free PDS foodgrains from direct pricing in CPI. Critics argue this may bias inflation downward given the scale of free distribution. How does the Ministry respond?
CPI is designed to measure changes in prices actually paid by consumers. When an item is supplied entirely free of cost, there is no observable transaction price, and its inclusion is inconsistent with internationally accepted CPI principles and IMF guidelines. Market-purchased food items remain fully covered in CPI and any indirect impact of free distribution on open-market prices is captured through observed market transactions. The Expert Group examined this issue in detail and concluded that the adopted approach enhances conceptual clarity and methodological consistency.
Critics say excluding PDS entirely might miss this indirect impact. What is your view?
It is assumed that the market for PDS-covered items operates efficiently, with prices determined by prevailing demand and supply conditions. The presence of free PDS influences market dynamics and, by extension, the prices of these commodities. Therefore, the market prices used in CPI calculations already reflect the impact of free PDS through indirect market mechanisms.
The decision not to include PDS was examined in detail through two consultation papers over the past year and a half. PDS items are undoubtedly significant, but many other services/items are also provided free or subsidized — e.g., health services, education services, school books/uniforms, free bicycles for girls in many states, etc. The monetary value of some of these can exceed PDS food grains. If PDS is included, why not these others? This creates a conceptual inconsistency. For these reasons, PDS items were kept out.
Housing-related weights increase in the new series, supported by methodological improvements. Could this create upward pressure on headline CPI and offset the reduced food weight?
Enhanced coverage of housing and related services improves the representativeness of the CPI basket. This methodological refinement ensures that housing-related price movements are more accurately reflected in the index. Rather than introducing bias, this change strengthens the analytical clarity of both headline and core inflation measures.
The expert group recommended shifting from pricing customized gold/silver jewellery to standardized items…
This change reflects evolving consumption patterns over the past decade or more. Customized jewellery was more prevalent decades ago, but now standardized jewellery is far more common and purchased. In the old series, pricing customized pieces was challenging and inconsistent. Prices will be collected for standard, basic/simple jewellery items (e.g., bangles, necklaces, rings) that are consistently available in the market. This also reflects broader changes. Weights for gold jewellery have reduced, while silver jewellery has increased slightly. The combined gold + silver jewellery weight has adjusted accordingly.
In recent months, high volatility in gold and silver prices has significantly impacted core inflation. How will the changes in the new series impact?
Inflation impact on any item depends on both its weight (proportion of household expenditure) and its price change. For some items, weights have reduced because households spend less on them now. The net effect is a combination of weight and price movement, which varies month to month.
With services gaining greater prominence, how might the new series affect core inflation behaviour?
The increased weight of services in CPI 2024 reflects structural changes in household consumption patterns. Expanded coverage of services, including telecom, digital and platform-based services, improves the representativeness of the index and provides a more comprehensive view of price movements in non-food, non-energy segments. This enhances the analytical usefulness of core inflation by aligning it more closely with actual consumption behaviour.
Will MoSPI release an alternative series or an experimental inflation series to address concerns about potential biases?
The current priority is the transparent and well-documented release of the CPI 2024 series. Suggestions regarding alternative or welfare-adjusted indices have been noted by the Expert Group; however, such measures require extensive consultations and careful methodology development. Any experimental indices, if pursued, would be clearly distinguished from the official CPI to avoid confusion.