Retail Inflation Data for October
The retail inflation data for October illustrates the pressing need for an update to the Consumer Price Index (CPI). The overall inflation rate fell to an unprecedented low of 0.25%, which, upon closer examination, appears to be a statistical anomaly rather than a genuine decrease in price levels.
Food and Beverages Category
- Prices fell by 3.7% in October, marking the largest drop in the current CPI series.
- This decline was primarily due to the high base effect from October the previous year, which saw a food inflation rate of 9.7%.
- The category holds a weightage of nearly 46% in the overall CPI, significantly impacting the index.
Other Major Sub-Groups
- Inflation in sub-groups such as fuel and light, housing, tobacco, and the miscellaneous category was higher this October compared to last year.
- The impact of GST rate cuts was primarily observed in the clothing and footwear category.
CPI Measure and Perception
The CPI measure is outdated, with its base year set as 2012, and the weightages are inaccurate, obscuring rather than clarifying the inflation picture. A discrepancy is noted between the CPI and public perception, with the RBI survey indicating a perceived inflation rate of 7.4%, contrary to the reported CPI figures.
Implications for RBI Monetary Policy
The urgency of updating the CPI arises not only from the gap between measured and perceived inflation but also due to its role in guiding the Reserve Bank of India (RBI)’s Monetary Policy Committee. The committee bases its interest rate decisions on the CPI, and the upcoming meeting in December will require careful consideration amid the anomalies and growth data influenced by the GST rate cut.
Conclusion
The Ministry of Statistics and Programme Implementation has indicated that a new CPI series will be available by the first quarter of the next financial year. The sooner this update is implemented, the better for accurate economic policymaking.
