India Revamps Inflation, Gone are the days of relying solely on outdated data. India is taking a significant step towards a more accurate measure of inflation by conducting a comprehensive review of consumer spending habits. This initiative comes after the release of initial findings from the first such survey in over a decade, which revealed a significant shift in spending patterns.
This shift, particularly the decrease in the share of food expenses, necessitates updating the Consumer Price Index (CPI). The CPI is a crucial economic indicator used by the central bank to set interest rates and gauge inflation. However, the current CPI relies on spending patterns from 2012, potentially misrepresenting present-day realities.
To bridge this gap, India is conducting a two-pronged approach. India Revamps Inflation, The first involves a comprehensive survey of household consumption between August 2023 and July 2024. This survey will capture details beyond just food, encompassing spending on processed food, clothing, health services. Consumer durables, reflecting changing priorities as incomes rise.
The second prong involves surveying retailers to capture information on the most popular items and brands. This data will help ensure the CPI reflects not just what consumers buy but also the specific products they choose. This multi-faceted approach aims to create a more accurate and up-to-date picture of consumer spending, leading to a CPI that better reflects the true inflation rate.
While the final report of the 2022/23 household survey is expected in a few months. The entire process of incorporating new data and conducting the retail survey is expected to take approximately a year. This means a revised and more reflective CPI could be released sometime next year.
“The new CPI index, whenever it is released, would be more closer to the price changes in the economy,” said Geeta Singh Rathore. Director general of the National Sample Survey. This updated gauge will provide valuable insights for policymakers. Enabling them to make informed decisions that impact the Indian economy in a more targeted and effective manner.