New CPI series to improve basis for formulating monetary, fiscal policies: CEA Nageswaran

Chief Economic Advisor V Anantha Nageswaran

Chief Economic Advisor V Anantha Nageswaran on Thursday said the new CPI series will improve the quality of data used in formulating monetary and fiscal policies.

The National Statistics Office (NSO) under the Ministry of Statistics & Programme Implementation (MoSPI) on Thursday released the new Consumer Price Index (CPI) with Base 2024=100.

The new series has captured more goods and services items, and excluded those which are not consumed presently. Weights of different item groups have been recalibrated based on the Household Consumption Expenditure Survey (HCES) 2023-24.

"Since the CPI basket is now aligned with recent expenditure data, the inflation signals derived from this will be more closely matched with the economic conditions. This improves the information basis for calibrating monetary and fiscal policy," Nageswaran told reporters at a press conference on the new CPI series.

He said that the new series, with wider coverage of services and digital markets, provides policymakers with a more up-to-date basis for assessing real incomes, consumption trends, and purchasing power.

The Reserve Bank of India (RBI) factors in the retail inflation while arriving at its bi-monthly monetary policy decision.

He said if CPI volatility declines, fiscal expenditure, DA fixation, and index bonds, which are linked to CPI, would become more stable, predictable and reliable.

The CEA said the proportion of weights assigned to the food basket has come down from 45.86 in CPI 2012 to 36.75 in the new series.

It also reflects the reallocation of certain items to other categories, such as restaurants and services.

"At the macro level, this reflects a progressive diversification of expenditure towards health, education, mobility, and connectivity, which is what you would expect to see from an economy which is seeing rising incomes and rising living standards," Nageswaran said.

He added that lower weightage for the otherwise volatile group of food and beverages may make the headline inflation also less volatile.

Such rebalancing, he said, is typically associated with income growth, productivity gains, and improving living standards.

The revised basket also highlights the increasing role of services in consumption, he added.

"This brings consumption measurement closer to the evolving structure of output and employment, where services account for a rising share of economic activity," he said.

The new series also recognises the growing role of digital channels in price formation and would help in better distinguishing urban and rural dynamics of inflation at the state level, and the subclass as well as item level, Nageswaran said.

He said if CPI volatility declines, fiscal expenditure, DA fixation, index bonds, et cetera, which are linked to CPI, would become more stable, predictable and reliable.

The new CPI series and upcoming GDP and IIP with a new base year will align Indian data with the best in the world, he said.