The weight of food and beverages will be cut to 36.75 per cent in the new consumer price index (CPI) series from 45.86 per cent currently
Aimed at making the headline inflation readings less volatile and provide more balanced outlook for monetary policy, Centre will cut the weight of food and beverages to 36.75 per cent in the new consumer price index (CPI) series from 45.86 per cent currently.
The new CPI series, with the base year 2024, is scheduled to be released on 12 February. The first release will provide indices from January 2025 onwards and inflation data for January 2026. The weights in the new series are derived from the Household Consumption Expenditure Survey (HCES) 2023-24.
In CPI 2024 series, the item basket will comprise 358 weighted items, mapped to 12 divisions, 43 groups, 62 classes and 192 sub-classes in accordance with the Classification of Individual Consumption According to Purpose (COICOP) 2018 classification.
To accurately capture the changing consumption behaviour of the households and to incorporate latest global best practices including methodological developments, the major recommendations of the expert group include adoption of latest COICOP 2018 framework up to the subclass level for classification of items, updation of CPI item basket and their corresponding weights using HCES 2023-24. The use of latest technology for price data collection and compilation, inclusion of administrative and online/ecommerce data, methodological improvements in index compilation including house rent index and more granular data dissemination are also among key recommendations.
“By considering the new weights on unchanged index we have calculated New CPI with old indices and found that overall CPI will increase marginally by 20 to 30 basis points. While, in the months when food inflation is higher, the new CPI will be low by 20-30 bps,” SBI research said in a report.
Updated Weights
As the F&B weight sees reduction in the new inflation series, clothing and footwear will also mark a reduction in allocated weight to 6.38 per cent from the current weight of 6.53 per cent. Education services’ weight will be cut to 3.33 per cent from 4.46 per cent.
On the other hand, the updated CPI series will see the weights of pan, tobacco and intoxicants rise to 2.99 per cent from 2.38 per cent. The weight of housing, water, electricity, gas and other fuels will rise from 16.91 per cent to 17.66 per cent. Similarly, the weight of transport, information and communication will rise to 12.41 per cent from 8.59 per cent.
The price data will be collected from 1465 rural markets and 1395 urban markets across 434 towns. Total number of weighted items in this basket will be 358. Among these items, goods will increase from 259 to 314 and services from 40 to 50 items. To verify rural and urban samples, identification of markets, shops and mapping of item identification, a de novo market survey will be conducted.
Inclusion Of Online, Ecommerce Data
To capture price movements on the ecommerce platforms, 12 online markets/towns (having more than 25 lakh population) will be added in CPI 2024 series. The prices of items will be collected through online/ecommerce platforms on weekly basis.
The report of the expert group noted that In CPI 2012, all data is collected from the physical or brick & mortar shops. To improve the quality of data, enhance robustness of CPI and reduce burden on the data collector, price collection mechanism for several items were explored by PSD in collaboration with State Regional Offices (ROs) of FOD, in CPI 2024.
“Further, it was also noted that as per HCES 2023-24, the share of expenditure, by the households, through online platforms was 4 per cent in rural and 10.5 per cent in urban areas. In view of this, 12 online markets are added across the towns having more than 2.5 million population. All items of CPI basket are mapped to the most popular platform available in the town,” the report said.
The report added that prices will be collected from 12 towns (Mumbai, Delhi, Bengaluru, Hyderabad, Ahmedabad, Chennai, Kolkata, Surat, Pune, Jaipur, Lucknow and Kanpur) with more than 25 lakh urban population as per Census 2011 for this exercise.
Item specifications captured from online platforms to be decided based on the topmost item specifications reported in the markets covered for each item in the brick & mortar shops of each of the 12 towns.
Other Key Recommendations
To verify rural and urban samples, identification of markets, shops and mapping of item identification, a de novo market survey will be conducted. The principle of selecting the most popular shop or item be consistently applied whenever a replacement or specification change is required and appropriate instructions be issued to field offices to ensure uniform implementation. The practice of mapping reserve shops in CPI may be discontinued.
To improve quality and reduce data collection burden on the investigators, price collection of electricity will be done by the state regional offices of Field Operations Division (FOD). Since prices of rail fare, postal services and fuel are centrally determined, price collection and compilation will be done by Price Statistics Division (PSD). The data will be sourced from the respective ministries on monthly basis.
Price collection of telecom services and online media services (OTT) will be done centrally by PSD through the online sources. In case of gold and silver jewellery, in line with international practice, the group recommended to adopt the approach of defining standard jewellery items that are likely to be available consistently in the market, rather than attempting to price customised pieces. Accordingly, prices of basic and simple gold and silver jewellery such as bangles, necklaces, and rings will be collected.
