New CPI Clearly Differentiates Rural From Urban Inflation: Chief Economic Adviser

New CPI Series: After the base year for consumer price index (CPI) was shifted from 2012 to 2024, Chief Economic Adviser, Dr. V Anantha Nageswaran, noted that the updated CPI will enable a clearer distinction between rural and urban inflation at the state level.

"As we all know very well, the economy itself has undergone a significant transformation in the past decade. Consumption behavior, market structures and the composition of household expenditure have evolved and the new CPI series therefore unsurprisingly reflects these changes, " according to the Chief Economic Adviser (CEA).

The number of service items has "increased from 40 to 50 enabling broader representation of service sector expenditure".

"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 recognizes the growing role of digital channels in price formation,' Nageswaran said.

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Meanwhile, India's consumer price index (CPI)-based inflation for January climbed to 2.75% on higher food and precious metal prices, as per the first data set under the latest CPI series.

On the other hand, the inflation rates for rural and urban areas stood at 2.73% and 2.77%, respectively. The housing inflation stood at 2.05%, while the food inflation rose to 2.13% year-on-year (YoY), however, the impact of headline inflation is expected to be lower as compared to the previous series. The corresponding food inflation rates for rural and urban stood at 1.96% and 2.44%, respectively.

"Therefore, the new CPI would help in better distinguishing urban and rural dynamics of inflation at the state level and the subclass item level as well. What are the policy implications of this? Since the basket is now aligned with recent expenditure data, the inflation signals derived from this will be more closely matched to the prevailing economic conditions. This improves the information basis for calibrating monetary and fiscal policy," he noted.