Key Changes in Consumer Price Index (CPI) Methodology
The Ministry of Statistics and Programme Implementation (MoSPI) has proposed significant changes to the Consumer Price Index (CPI), specifically focusing on the housing index.
Monthly Rent Data Collection
- Rent data will be collected monthly in both rural and urban areas, replacing the current practice of bi-annual collection limited to urban areas.
Exclusion of Employer-Provided Dwellings
- Government and employer-provided accommodations will be excluded from the CPI housing index to avoid market distortion.
Objective of Changes
- These changes aim to create a more robust and representative housing index.
Current CPI Focus
- The present CPI gives a weight of 21.67% to housing in urban areas and 10.07% nationwide.
Impact on Inflation Measurement
- The revised methodology will enable a more accurate assessment of rentals and housing prices on inflation, especially post-pandemic.
Challenges with Current Method
- Inflation calculation based on House Rent Allowance (HRA) does not reflect actual market rates.
- Government housing has been a contentious issue for economists over the past decade.
Base Revision Exercise
- This is part of the CPI base revision, alongside previous discussions on the Free Public Distribution System (PDS) items.
New Data Inclusion
- The Household Consumption Expenditure Survey (HCES) 2023-24 includes house rent data for rural areas, allowing for a comprehensive housing index for both sectors.
Feedback and Consultation
- Stakeholders can submit feedback on the housing index methodology changes by November 20.
Sample Coverage Expansion
- Rent data will be collected from all selected dwellings each month, broadening the sample size.
International Expertise and Guidance
- Consultation with the International Monetary Fund (IMF) has informed the proposed changes, addressing panel survey limitations.
Importance of Housing in CPI
- Housing is a critical indicator of household well-being as it represents a significant part of household expenditure.