The new Consumer Price Index (CPI) series may assign a 36-38 percent weight to the "food and beverages" group, which is likely to curb the impact of volatility in food prices on the headline retail inflation print, a senior government official told Moneycontrol. In the present CPI series, the segment carries a weight of 45.9 percent.
"The weights are not yet final, but it’s likely to be within this range," the official said. "The source of assigning weights is the consumer expenditure survey but the actual weights in the CPI series is not the same as what the survey shows," the person added. The new CPI series will come into effect from February 2026, with 2024 as the base year.
According to the Household Consumption Expenditure Survey (HCES) 2022-23, the food and beverages grouping's share in the monthly per capita consumption expenditure of households dropped to 46.4 percent in 2022-23 from 52.9 percent in 2011-12.
The current CPI series has a base year of 2012, and the assignment of weights of items is through the HCES of 2011-12. To be sure, the actual weight reflected in the CPI series is about 7 percentage points lower than the consumption share mentioned in the HCES of 2011-12.
Several economists, policymakers and officials from the finance ministry have argued for an urgent need to update the CPI as the current series doesn’t adequately reflect the inflation dynamics of the economy, given the changes in consumer spending patterns.
Additionally, the CPI figures have a direct impact on monetary policy. "Therefore, if the weight of food and beverages reduces, it will reduce volatility in the headline numbers," said Abhishek Upadhyay, senior economist, ICICI Securities Primary Dealership.
"However, volatility is more in the prices of vegetables, pulses and edible oils… The weights of those are unlikely to reduce much," Upadhyay added.
Chief Economic Advisor V Anantha Nageswaran in Economic Survey 2023-24 had pitched for excluding food inflation from monetary policy decisions, saying that rate cuts don’t have an impact on food prices, which are, rather, affected by supply-side pressures.
The Reserve Bank of India (RBI) on Friday cut the repo rate by 50 basis points to 5.5 percent in order to support growth. "(The) changed growth-inflation dynamics calls for not only continuing with the policy easing but also frontloading the rate cuts to support growth," said the monetary policy statement.
"The inflation outlook for the year is being revised downwards from the earlier forecast of 4 percent to 3.7 percent. Growth, on the other hand, remains lower than our aspirations amidst a challenging global environment and heightened uncertainty. Thus, it is imperative to continue to stimulate domestic private consumption and investment through policy levers to step up the growth momentum," the statement said.
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