Shifts in Consumer Behavior anticipated in New CPI Series

New CPI Series: The recently unveiled Household Consumption Expenditure Survey (HCES) for 2022-23 indicates a remarkable improvement in the economic well-being of rural households compared to urban counterparts, highlighting the success of government initiatives in enhancing rural incomes. The Monthly Per Capita Consumption Expenditure (MPCE) gap between rural and urban areas has significantly narrowed, signaling positive economic shifts. 

The survey underscores a decline in the share of food expenditure across both rural and urban segments, accompanied by an encouraging rise in spending on proteins, notably higher in rural areas than urban. These trends are likely to influence the forthcoming Consumer Price Index (CPI), potentially resulting in lower weights for food and higher weights for core goods and services.

Contrary to perceptions of a sluggish rural economy, the observed rural expenditure growth can be attributed to higher rural inflation and the sector's higher marginal propensity to consume (MPC). The survey suggests tangible improvements in rural livelihoods, particularly among the lowest-income groups, closing the gap with urban standards.

However, income inequality is on the rise at the top, with over an 85 per cent difference in spending for the highest 10 per cent of households. The survey also highlights positive trends in nutritional choices, with declining shares of food in MPCE and increased spending on fruits, milk, durable goods, and entertainment.

Case for New CPI Series

The evolving consumer behavior captured in the survey is expected to influence the new CPI series. Anticipated changes include a likely reduction in the weight of food and beverages, currently comprising around 46 per cent of the index, and an increased focus on core goods and services.

This shift aims to create a more stable CPI that better aligns with contemporary consumption patterns. The revision of the CPI index is underway, with the next survey expected to be completed by Jul-24, and the updated series likely to be released by Jul-Aug 2025.