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Informist, Friday, Dec. 27, 2024

 

NEW DELHI – Indians felt the impact of higher food prices over the past year, with the statistics ministry's latest Household Consumption Expenditure Survey showing they used a larger chunk of their monthly consumption expenditure in 2023-24 (Aug-Jul) to buy perishables compared to the previous 12 months. As per the factsheet of the survey released by the Ministry of Statistics and Programme Implementation Friday, the share of food in the monthly per capita consumption expenditure rose by 66 basis points from 2022-23 to 47.04% in 2023-24 for rural households. The increase was slightly lower at 51 bps to 39.68% for urban households.

 

Usually, the share of food in a household's consumption expenditure reduces over time as income levels rise, allowing for more discretionary spending, such as on clothes, durable goods, and entertainment and recreation. However, from one year to the next, prices of goods and services have a larger impact on consumption patterns.

 

In the 12 months starting August 2022, rural retail food inflation averaged 6.2?fore rising to 8.1% in 2023-24 (Aug-Jul). The increase was even larger for urban areas: from 5.6% to 8.4%. Vegetable prices in particular rose sharply last year, and this showed up in how households spent their money. In 2022-23, 5.38% of the monthly per capita consumption expenditure of rural households was on vegetables. This rose to 6.03%, or by 65 bps, in 2023-24. The increase for urban households was 32 bps.

Households also spent a greater share of their monthly expenditure budget in 2023-24 on spices, beverages, and processed foods, the statistics ministry's data showed. But if food's share rises, that of others must fall.

 

For rural households, the largest decline in spending shares in 2023-24 was for the 'fuel and light' group of items (down 55 bps from 2022-23), with durable goods (down 41 bps) not far behind. The trend was similar for urban households, with the share of 'fuel and light' down 67 bps in 2023-24 from the previous 12 months, while that of durable goods fell by 30 bps.

 

To be sure, this increase in the share of food in monthly per capita consumption expenditure is unlikely to be the start of a trend. And with the share of food not significantly different in 2023-24 from 2022-23, the statistics ministry can use the results of the latter survey to create the new CPI basket.

 

In a discussion paper released Tuesday, the ministry said the weights of items in the new CPI basket will be derived from the 2022-23 survey. "Several modifications are being implemented in the base revision exercise to enhance the robustness and relevance of the new series. These updates aim to align with the latest technological advancements and reflect recent changes in consumption patterns," the paper added.

 

The weight of items, particularly those in the food group, is a crucial aspect of the CPI revision exercise as it influences the movement of headline inflation. Prices of food items, especially vegetables, are volatile and can lift overall CPI inflation sharply even if non-food prices are subdued, as has been the case so far in 2024. This has stopped the Reserve Bank of India from cutting interest rates as its inflation mandate is spelt out in terms of headline retail inflation.

 

In the first 11 months of 2024, CPI food inflation has averaged 8.4%, pushing up headline retail inflation to 4.9% even though core inflation--or inflation excluding the volatile food and fuel items--has averaged just 3.4%, well below the central bank's medium-term target of 4.00%.  End

 

Reported by Sidharth Upasani

Edited by Rajeev Pai

 

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