The government is working on updating the CPI base year to 2024 from 2012, using weights based on the Household Consumption Expenditure Survey (HCES) 2022-23. The new series is likely to be released in 2026.
Economists said the composition and weight of items in the updated CPI basket will impact the inflation numbers.
“While the new base year might impact the index level, the year-on-year growth rate will be affected by the changes in weights,” said Gaura Sengupta, chief economist, IDFC First Bank.
The index level will decline owing to the more recent base year, but the year-on-year change will not get affected, she said.
In the new CPI series, the weightage of food is likely to decline based on HCES 2022-23.“A lower weightage of food, on average, would lead to lower volatility compared to the earlier weightage (as per 2011-12 HCES),” said Paras Jasrai, senior economic analyst, India Ratings and Research.The share of food in average monthly consumption expenditure in rural areas declined to 46.4% in 2022-23 from 52.9% in 2011-12. In urban areas, it fell to 39.2% from 42.6%, according to HCES 2022-23.
Reduced weight of food should help curb the volatility in inflation to an extent, said Upasna Bhardwaj, chief economist at Kotak Mahindra Bank.
However, Madan Sabnavis, chief economist at Bank of Baroda, said that using a high inflation year as base could create a downward bias in inflation measurements. “With a high inflation year as the base, subsequent figures will reflect a smaller increase,” he said.
India’s retail inflation surged to a 14-month high of 6.2% in October, with food inflation reaching a 15-month high of 10.9%.
The Reserve Bank of India raised its inflation forecast for 2024-25 to 4.8% from 4.5% earlier, citing higher food prices in recent months.
“Any year after 2021 will give a downward bias to the inflation number. Ideally, 2018 or 2019 might have been a more suitable base year for a balanced reflection of inflation trends,” said Sabnavis.
Bhardwaj expects any initial downside in inflation figures due to the new base and weights to normalise over time.
