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Informist, Monday, Aug 12, 2024

 

NEW DELHI – The share of food and beverages in the Consumer Price Index is likely to decline by more than 500 basis points once the government finalises the new series, a senior official in the statistics ministry said. The food and beverages category makes up for 45.86% of the overall CPI, and is the largest category in the index right now.

 

The statistics ministry has already reconstituted the Technical Advisory Committee on Statistics of Prices and Cost of Living to advise on the construction of CPI, WPI, and Producer Price Index. Informist had previously reported that the government had already started the groundwork to update the CPI with the release of the household consumption expenditure survey for 2022-23 (Aug-Jul), and was likely to bring out a new CPI series by the end of 2025.

 

The new CPI will have 2024 as the base year, the Economic Survey for 2023-24 said. The current base year of the CPI is 2012 which is based on the household consumption expenditure survey of 2011-12. Experts have long called for the need to update the CPI series.

 

While the committee is yet to finalise the details of the new CPI series, the share of food and beverages will certainly be lower in the current series, the official said.

 

The results of the household consumption expenditure survey, released earlier this year, showed that the average spending on food items in rural India, as a share of total expenditure, fell to 46.38% in 2022-23 from 52.90% in 2011-12. Similarly, the average spending on food items by urban India was down at 39.17% in 2022-23, against 42.62% in 2011-12, according to the survey, which was released after 11 years. The ministry has conducted another round of the consumption expenditure survey for 2023-24, the results of which are due, to test the robustness of the methodology.

 

Food inflation has been the primary reason why CPI inflation stayed above the Reserve Bank of India's target of 4% in recent times. Food inflation averaged 7.5% in 2023-24, while headline inflation was 5.4%. 

 

In fact, the Economic Survey this year suggested that India should rethink its inflation targeting framework to consider focusing on inflation excluding food prices. "Higher food prices are, more often, not demand-induced but supply-induced. Short-run monetary policy tools are meant to counteract price pressures arising out of excess aggregate demand growth," the survey had said. 

 

But Reserve Bank of India Governor Das shrugged off this suggestion last week. Higher food prices adversely affect household inflation expectations, which have a significant impact on future trajectory of inflation, he had said. "Persistently high food inflation and unanchored inflation expectations--if they materialise--could lead to spillovers to core inflation through pick-up in wages on cost-of-living considerations," he said.  End

 

Reported by Shubham Rana

Edited by Akul Nishant Akhoury

 

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