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The weight of food and beverages will reduce from the current 45.86 per cent to 36.75 per cent in calculating consumer price index (CPI), which is used to measure inflation, according to the documents published by the Union Ministry of Statistics and Programme Implementation (MOSPI).
An expert group has been working on a new CPI series and revising the CPI base year from 2011-12 to 2023-24, as the household consumption patterns have evolved from 2011-12 and do not reflect current behaviour.
According to its recommendations published on MOSPI website on January 29, food will carry a weighting of 34.77 per cent, while beverages 1.77 per cent. The combined weight of food and beverages in the inflation basket will now stand at 36.54 per cent.
Policymakers and economists have long raised concerns about the large share of food in the CPI basket. Food prices often fluctuate due to weather shocks and consequent supply disruptions. Since food accounted for nearly half of the consumer basket, any significant fluctuations in food prices strongly influenced movements in the overall inflation rate.
The new revision, the government and economists have noted, will reduce volatility in consumer inflation.
The 2023-24 Household Consumption Expenditure Survey (HCES) showed lower spending on food by both rural and urban households. While rural households spent 47.04 per cent of their Monthly Per Capita Consumption Expenditure on food, down from 52.9 per cent in 2011-12, urban households spent 39.68 per cent of their expenditure, compared to 42.62 per cent in the earlier Survey.
Meanwhile, housing, along with water, electricity, and gas will form a larger share of the basket in the new CPI series — rising from 10.07 per cent to 17.66 per cent.
In the revised CPI series, house rent coverage was expanded to rural areas for the first time, marking a major methodological enhancement, the report stated. It revised the methodology for compiling the House Rent Index to calculate retail inflation.
Other household expenses such as transport will account for 8.79 per cent, clothing and footwear for 6.38 per cent, and health 6.10 per cent. For the first time, CPI will also factor in prices from e-commerce platforms with items like airfares, rates of OTT channels like Netflix and Amazon Prime, and telecom plans.
The new CPI series will be used for the first time to calculate the inflation data for the month of January, which will be released in February. The number of items in the new series was increased to 358 from the existing 299.
In the existing CPI series, prices were collected for 299 items, from 1,181 rural markets and 1,114 urban markets across 310 towns. In the new series, the sample markets in both rural and urban areas have been increased to 1,465 rural markets and 1,395 urban markets across 434 towns.
Further, 12 online markets have also been added across 12 towns having more than 25 lakh (2.5 million) population to capture price variations of the items on the e-commerce/online platforms.