As per a person acquainted with the situation, a government body in India responsible for updating the country’s consumer price index is contemplating a significant reduction in the food weighting. This action might potentially mitigate inflation surges in the South Asian country.
The individual, who wished to remain anonymous because the talks are confidential, said that the panel, which is part of the statistics ministry, is debating a proposal to lower the weight of food in the consumer price basket by as much as 8 percentage points. 54.2 percent of the current CPI basket is comprised of the food and beverage sector.
The official inflation data that the central bank uses to calculate interest rates may be distorted by the CPI’s current base of consumer spending patterns, which experts claim are out of date. Consumers are spending less of their budget on food than they did ten years ago, according to more recent polls. In June, according to Bloomberg Economics, inflation was 70 basis points more than it would have been with the new weights.
An email requesting more details was not immediately answered by a representative for the Ministry of Statistics and Program Implementation.
The Reserve Bank of India has maintained a relatively hawkish posture in light of the fact that inflation is above its 4% objective by holding interest rates steady for more than a year. According to Bloomberg’s survey of economists, the RBI will probably hold on Thursday as well.
Food’s large percentage in the CPI basket makes it a major contributor to inflation in India. The headline inflation rate increased to 5.08 percent in June due to a 9.36% increase in food costs from the same month last year. Inflation was 3.15 percent when food and energy expenses were subtracted.
Revisions to the CPI, which presently consists of 299 items, would likely remove unnecessary components from the calculation, such as horse cart fares, video cassette recorder pricing, and audio and video cassette costs. According to the source, the government council is also debating adding consumer electronics like cellphones to the most recent index.
The base year and CPI weight modifications that are currently being discussed won’t probably be put into effect until January 2026. The statistics ministry is currently finalising the results of new consumer spending surveys, which will serve as the basis for the changes. It is anticipated that the entire procedure would be finished in 2025.
Last month, V Anantha Nageswaran, India’s Chief Economic Advisor and a senior official in the Ministry of Finance, suggested that food should not be included in the central bank’s inflation target. However, a number of experts claimed that excluding food from the CPI target wasn’t suitable for an economy the size of India.