By Mr. Sreejith Balasubramanian, Senior Economist – Fixed Income, Bandhan AMC for your perusal.
India CPI New Series – What to Look Out For
The new India CPI series, with 2024 as the base year, will be released today for the January print. This incorporates several changes and improvements. Below are the things to note and look out for:
- Consumption basket items and weights will be updated based on HCES 2023-24, will include 358 items vs. 299 previously, and will have updated item divisions. Coverage of markets and items for price collection will be expanded with the addition of 284 villages, 281 urban markets and 12 online markets. Price data sources will now include e-commerce platforms and online sources for airfares, telecom services, etc. The methodology for index compilation and missing price imputation has also been updated. All-India and state-wise item-level CPI will now be released for rural, urban and combined sectors.
- Higher Core, Lesser Food – As per the Expert Group Report on Comprehensive Updation of CPI, Food and Beverages will now have a weight of 36.8% (vs. 45.9% previously). However, the restaurant services division is now considered outside the F&B division, including which the new F&B weight will be 40.1%. Thus, CPI excluding F&B and fuel will accordingly have a weight of 57.8% or 54.5%.
- Changes to the Housing index – expanded coverage for price data collection, inclusion of rural (vs. only urban previously), exclusion of employer-provided (including government-provided) housing, every dwelling to be surveyed every month (should avoid sudden changes in data), change of dwelling weights to that based on Census 2011, and uniformity of compilation method.
- Treatment of PDS items – After detailed discussions, it was decided that free social transfers (free food distributed through PDS, free electricity, etc.) will not be considered in CPI compilation as this does not constitute out of pocket expenditure for consumers and is also aligned with global practices.
- How different could the data be? Based on an exercise to estimate the December print using the new weights, we see the new series headline CPI could be higher by ~50bps and core by ~20bps. However, this exercise captures only new weights and not the new index values, methodology, etc. Further, if FY26 average data has a similar upside, FY27 should have a similar downside.
- Things to note – Today, MoSPI will release the linking factor for calculation of back series of All-India combined, rural and urban levels, while more deliberations are required to provide detailed back series. The Expert Group also recommended that, since there is no uniform definition of core inflation, MoSPI should not publish core inflation as it may be interpreted differently by different stakeholders.
Note: HCES – Household Consumption Expenditure Surveys, F&B – Food & Beverages, PDS – Public Distribution System.
