​Overdue upgrade, Pg8

Key Highlights:

• A new Consumer Price Index (CPI) series with a base year of 2024 has been released, replacing the 2012 series.
• The new CPI is based on consumption patterns from the Household Consumption Expenditure Survey 2023-24.
• The weightage of food and beverages in the overall CPI has been reduced to 36.75% from 45.86%.
• The new index includes data from 12 online marketplaces for the first time.

Detailed Insights:

• The previous CPI series used consumption patterns from 2011-12, which no longer accurately reflected current consumption behavior due to changes like the free foodgrain program and the emergence of new services.
• The updated CPI aims to provide a more accurate picture of inflation by increasing the number of items covered and including more marketplaces, reflecting the growing importance of the service economy.
• A more realistic weightage for food in the CPI can lead to a more stable overall index, increasing predictability in Budget-making for inflation-indexed dearness allowance and dearness relief.
• An updated CPI gives the Reserve Bank of India’s Monetary Policy Committee a more accurate picture of inflation for deciding policy interest rates.
• The Ministry of Statistics and Programme Implementation (MoSPI) should provide back data calculated under the new methodology to ease comparative analysis and stick to its plan to revise the CPI every five years.

Key Concepts Involved:

• Consumer Price Index (CPI): A measure that examines the weighted average of prices of a basket of consumer goods and services, such as transportation, food, and medical care.
• Inflation: The rate at which the general level of prices for goods and services is rising, and subsequently, purchasing power is falling.
• Monetary Policy Committee (MPC): A committee of the Reserve Bank of India that is responsible for setting the policy interest rates to control inflation and promote economic growth.