‘New series may make inflation less volatile’

NEW DELHI: Lower weightage of food and beverages in new consumer price inflation (CPI) series may make overall inflation less volatile, leading to monetary policy response to be more focused on aggregate demand pressure, rather than dealing with supply-induced inflation, chief economic advisor (CEA) V Anantha Nageswaran said Thursday. This will help calibrating monetary and fiscal policy better as updated data reflects current consumption patterns and economic conditions, he added.

Highlighting the policy implications of new inflation series, the CEA indicated that lower volatility may lead to better predictability of govt’s Budget and also help assess inflation expectations in households and businesses.




“New CPI series now provides policy makers with a more up-to-date basis for assessing real incomes, consumption trends and purchasing power,” said Nageswaran.

The weightage of volatile food and beverages items in the new series has been reduced to about 37% from 46% earlier, which according to Nageswaran reflects a progressive diversification of expenditure towards health, education, mobility and connectivity.

“The revised basket also highlights increasing role of services in consumption. This brings consumption measurement closer to the evolving structure of output and employment, where services account for a rising share of economic activity and the new series also recognises the growing role of digital channels in price formation.”

The CEA also said the new CPI series captures housing costs more accurately, leading to better measurement of the rural cost of living, reducing urban bias in inflation estimation. “So, poverty estimates become more accurate since real consumption and real income calculations depend directly on CPI. Improved cost of living measurement enhances targeting efficiency of welfare schemes, ensuring benefits, subsidies are better aligned with actual regional price realities.”