New CPI to track rural housing inflation, exclude employer-provided dwellings, Pg21.

Key Highlights:

• MoSPI proposes changes to the Consumer Price Index (CPI) to track rural housing inflation starting February.
• Monthly rent data collection will occur in both rural and urban areas, unlike the current semi-annual collection for urban areas only.
• Government and employer-provided housing will be excluded from the housing index to reflect actual rental market transactions.
• The existing CPI assigns a 21.67% weight to housing in urban areas and 10.07% at the all-India level.

Detailed Insights:

• The revision aims to improve the accuracy of inflation measurement by including rural rental data and excluding non-market rental rates.
• Economists have questioned the inclusion of government housing in CPI calculations due to the use of HRA as a proxy for rent.
• The Household Consumption Expenditure Survey (HCES) 2023-24 captured rural house rent data, enabling the compilation of a housing index for both rural and urban sectors.
• The new housing index will expand sample coverage by collecting rent data monthly from all selected dwellings.
• IMF experts advised on using a panel survey approach for rent collection, converting six-month changes into one-month changes.
• MoSPI seeks feedback on the proposed changes by November 20 via email at pcd-nso2020@mospi.gov.in.

Key Concepts Involved:

• Consumer Price Index (CPI): A measure that examines the weighted average of prices of a basket of consumer goods and services.
• House Rent Allowance (HRA): A component of salary given to employees to cover the cost of renting a home.
• Inflation: The rate at which the general level of prices for goods and services is rising, and subsequently, purchasing power is falling.