India to cut food weighting in CPI in new inflation series

NEW DELHI: India will cut the weighting of food in its consumer price index (CPI) to 36.75% in a new inflation series, potentially making headline inflation readings less volatile and smoothing the outlook for monetary policy.

Food ‌prices, which ‌tend to swing based on factors such as weather and supply disruptions, now account for 45.86% of the basket used ‌to calculate CPI, while the central bank uses CPI as the anchor for its main inflation target of 4% plus or minus two percentage points.

The current CPI basket still reflects 2011-12 consumer spending patterns, which economists say are no longer valid and may be skewing the readings.


The statistics ministry said in a report that the revamped data series will use 2024 as the base year, while 2025 will be used as ‌an overlapping year ‍between the old and new series so that past data can ‍be converted into the new base statistically.

The number of major ‌spending groups will be expanded to 12 from six, aligning India's inflation framework with international standards.

Recent surveys show food now accounts for 39.7% of urban household spending, down from roughly 43% in 2011-12, and around 47% in rural areas, down from 53% earlier.

The weighting of housing, water, electricity, gas and other fuels will stay at 17.66%, making shelter and utilities the second-biggest driver of inflation.

"For the first time, rural house rent ‍has been included in the CPI. Further, in both rural and urban areas, the sample size for house rent has been increased," said Saurabh ‍Garg, secretary, Ministry of ⁠Statistics and Programme Implementation.

Transport ⁠accounts for 8.8%, while health at 6.10% and clothing & footwear at 6.38% remain significant household expenses.

Categories such as restaurants & accommodation, education and information & communication, each at around 3.5%, will reflect a more service-oriented consumption basket.

For the first time, CPI will factor in prices from e-commerce platforms with items like airfares, OTT subscriptions, telecom plans and some services set to be tracked, the report showed. India's headline inflation rose in December to its fastest rate in three months at 1.33% year-on-year, as a decline in food prices slowed. Inflation in November stood at 0.71%.