The government could include e-commerce data and expand coverage to improve retail inflation calculations

Proposed amendments to the consumer price index include measures such as using modern data collection methods to obtain price information from e-commerce platforms, considering only privately rented homes to calculate residential rents and expanding the number of markets covered, according to a recent presentation Ministry of Statistics and program implementation.

These changes are aimed at accurately reflecting the cost structure of urban and rural regions as part of a larger effort to modernize India’s statistical system.

Frequent revisions, ideally every five years, are necessary given the rapid changes in consumption, especially in a developing economy like India, to ensure it reflects modern consumption patterns as far as possible, said former TCA chief statistician Ananth.

“The index itself is very good. This is a very modern index. Data collection is done using very modern methods and efficiently,” Anant added.

In addition to updating its methodology for calculating retail inflation, the ministry plans to improve its data collection process by replacing paper surveys with digital tools to improve accuracy and efficiency. The ministry is committed to publishing more detailed inflation data, which will provide greater insight into regional and demographic trends.

It is working to update the base year for calculating gross domestic product and the index of industrial production. While the current base year for these indices is 2011-12, the revised base year for GDP is expected to go beyond 2015-16, a senior government official had said earlier. Mint.

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In this regard, the ministry organizes brainstorming sessions with key stakeholders, policymakers, economists and statisticians to seek suggestions and ideas.

On Wednesday, he presented his proposals during a session on ‘Taking into account PDS items and other needs in compiling consumer price index’, which was attended by policymakers including NITI Aayog member Ramesh Chand, chief economic adviser V Anantha Nageswaran and statistics ministry secretary Saurabh. Garg, in addition to scientists, economists and statisticians.

Accuracy, efficiency

By engaging stakeholders and applying innovative methodologies, the statistics ministry aims to ensure that the updated CPI provides a more accurate and reliable measure of inflation, supporting more informed policy and economic analysis, a senior government official said on condition of anonymity.

“The base year revision process was delayed due to the pandemic. But now the work is in full swing,” the official added.

In discussions on the challenges of including free public distribution system (PDS) items in CPI calculations, Chief Economic Adviser Anantha Nageswaran highlighted the important role food plays in household consumption, calling for an assessment of international practice and the involvement of a wider range of experts. a group of experts to make a comprehensive and informed decision.

NITI Aayog member Chand stressed the importance of analyzing how free distribution of PDS affects prices in the open market. He said careful consideration should be given to whether PDS items should be excluded from CPI calculations to ensure the index remains accurate and up-to-date.

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MoSPI Secretary Garg provided information on the scope and methodology of CPI and also highlighted regional differences in inflation.

“The Consumer Price Index aggregates data for about 400 items in 1,200 markets,” he said. “In Mumbai, forecasters noted that house prices in 10 major cities reflect very high inflation. However, if we take into account data from tier 1, tier 2 and tier 3 cities, inflation is a significantly different and lower figure.”

India’s inflation figures need to be updated to reflect changing economic realities, experts say. The CPI, currently based on 2011-12 household consumption data, often does not reflect modern spending patterns.

Food prices

Food inflation remains resilient to monetary policy interventions, with factors such as weather-related supply volatility and trade restrictions exacerbating the problem.

The latest data from the ministry showed that retail inflation, as measured by the consumer price index, accelerated to 6.21% in October from 5.49% in September, marking the highest level since August 2023, when inflation stood at 6.83%.

Food prices rose 10.87% in October compared to a 9.24% rise in September. This was also the highest figure in 15 months. Of course, food inflation accounts for almost half of the consumer basket.

Core inflation, which excludes food and fuel prices, was 4% in October, down from 3.8% in the previous month.

The inflation data comes just days after the Reserve Bank of India warned of a “very strong” reading for the month, although it expects inflation to ease in the coming months as food prices fall. first quarter of 2025.

The Repo Rate Mystery

The RBI has not cut its key repo rate (currently 6.5%) since February 2023.

While demand for food is inelastic, rising interest rates primarily squeeze demand for non-food items, negatively impacting sectors such as domestic manufacturing, Anant said.

“While the consumer price index reflects consumer prices, the industrial wholesale price index shows prolonged deflationary pressures, highlighting the need to move to a producer price index, which is a global standard,” Anant said.

A panel of experts had already recommended a roadmap for this change, he said, adding that fiscal policy, known for its prudentness, had played a critical role in containing inflation.

“RBI should revise its inflation targeting framework to include both CPI and PPI to improve efficiency. Such a coordinated approach can ensure inflationary trends are better managed and support broader economic growth,” Anant said.

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Commerce Minister Piyush Goyal recently called on the RBI to cut interest rates, saying using rate hikes to fight food price inflation may be misguided.

While the growing disparity between food and non-food inflation is an early signal of a slowdown in the real economy that, if left unchecked, could lead to stagflation, lower rates could help stimulate demand for non-food goods and support an economic recovery, he says. Debopam Chaudhuri, Chief Economist, Piramal Enterprises Ltd.

“Consumer demand is weakening and sales growth during the festive season was mainly driven by deep discounting rather than organic growth,” Chaudhuri said. “Continuing interest rates due to high food inflation could negatively impact economic growth. These are unusual times and we may have to allow some easing in monetary policy.”