Proposed revisions to the consumer price index include measures such as leveraging modern data collection techniques to obtain price information from e-commerce platforms, considering only privately rented housing to calculate housing rents and expanding the number of markets covered, according to a recent presentation by the Ministry of Statistics and Program Implementation.

These changes are meant to accurately capture spending patterns in urban and rural regions as part of a larger effort to modernize India’s statistical framework.

Frequent revisions, ideally every five years, are essential given the rapid changes in consumption, especially in a developing economy like India, so that they reflect contemporary consumption patterns as closely as possible, the former chief statistician said TCA Anant.

“The index itself is very good. It is a very modern index. Data collection is done through very modern techniques in an efficient manner,” added Anant.

In addition to updating the retail inflation calculation methodology, the ministry plans to modernize its data collection process, replacing paper surveys with digital tools to increase accuracy and efficiency. The ministry aims to publish more detailed inflation data, allowing deeper insights into regional and demographic trends.

Work is underway to update the base year to calculate the gross domestic product and industrial production index. While the current base year for these indices is 2011-12, the revised base year for GDP is expected to change beyond 2015-16, a senior government official said earlier. Mint.

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To this extent, the ministry organized brainstorming sessions with key stakeholders, policy makers, economists and statisticians, seeking suggestions and insights.

On Wednesday, he presented his proposals during a session on “Treatment of PDS Items and Other Necessities in Compilation of Consumer Price Index”, which was attended by policymakers including NITI Aayog member Ramesh Chand, Chief Economic Adviser V Anantha Nageswaran and Secretary Ministry of Statistics Saurabh. Garg, apart from academics, economists and statisticians.

Accuracy, efficiency

By engaging stakeholders and adopting innovative methodologies, the statistics ministry aims to ensure that the revamped CPI provides a more accurate and reliable measure of inflation, supporting better-informed policymaking and economic analysis, said a senior government official under reserve of anonymity.

“The base year review process has been delayed by the pandemic. But now the work is going on,” the official added.

During discussions on the challenges of incorporating free items from the Public Distribution System (PDS) into CPI calculations, Chief Economic Adviser Anantha Nageswaran highlighted the significant role that ration items play in household consumption, calling for an assessment of international practices and the involvement of a panel of experts to reach a comprehensive and informed decision.

NITI Aayog member Chand emphasized the importance of analyzing how free distribution of PDS influences prices in the open market. He said careful consideration was needed to decide whether PDS items should be excluded from CPI calculations to ensure the index remains accurate and relevant.

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MoSPI Secretary Garg provided information on CPI scale and methodology, also highlighting regional variations in inflation.

“The CPI collects data from about 400 items in 1,200 markets,” he said. “In Mumbai, forecasters pointed out that house prices in the top 10 cities reflect very high inflation. However, when you consider data from tier 1, 2 and 3 cities, inflation shows a significantly different and lower figure.”

India’s inflation figures need to be updated to reflect evolving economic realities, experts said. The CPI, currently based on household consumption data from 2011-2012, often fails to capture contemporary spending patterns.

Food prices

Food inflation remained resilient to monetary policy interventions, with factors such as supply volatility due to weather and trade restrictions exacerbating the challenge.

The latest data from the ministry showed that retail inflation, as measured by the CPI, accelerated to 6.21% in October from 5.49% in September, marking the highest level since August 2023, when inflation was 6.83%.

Food prices rose 10.87 percent in October, compared with a 9.24 percent increase in September. And this was the highest in the last 15 months. Certainly, food inflation accounts for almost half of the consumption basket.

Core inflation, which excludes food and fuel prices, was 4% in October, up from 3.8% the previous month,

The inflation figures came just days after the Reserve Bank of India warned of a “very high” reading for the month, although inflation is expected to cool in the coming months as food prices ease. Economists now expect an interest rate cut to be pushed to the first quarter of 2025.

The conundrum of the repo rate

The RBI has not cut the key repo rate – currently 6.5% – since February 2023.

While food demand is inelastic, interest rate hikes primarily compress non-food demand, negatively impacting sectors such as domestic manufacturing, Anant said.

“While the CPI reflects consumer prices, the Wholesale Price Index for Manufactured Goods showed prolonged deflationary pressures, underscoring the need to transition to a producer price index, a global standard,” Anant said.

A panel of experts has already recommended a road map for this change, he said, adding that fiscal policy, noted for its prudence, has played a key role in keeping inflation under control.

“RBI should recalibrate its inflation targeting framework incorporating both CPI and PPI to improve effectiveness. This coordinated approach could ensure better management of inflationary trends and support broader economic growth,” said Anant.

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Commerce Minister Piyush Goyal recently asked the RBI to cut interest rates, saying the use of rate hikes to tackle food price inflation could be flawed.

While the widening disparity between food and non-food inflation serves as an early warning sign of a slowdown in the real economy that, if left unchecked, could lead to stagflation, a rate cut could help boost demand non-food and supporting economic recovery, said Debopam Chaudhuri, chief economist at Piramal Enterprises Ltd.

“Consumer demand declined and the higher sales seen during the festive season were mainly driven by significant discounting rather than organic growth,” Chaudhuri said. “Maintaining monetary policy rates due to high food inflation could have a negative impact on economic growth. These are extraordinary times and we may need to allow some slack in monetary policy.”