CPI Index and Inflation Analysis
The recent update in the Consumer Price Index (CPI) has shown an inflation rate of 2.8 per cent in January. The revised basket of goods and services, along with the updated weightage of components, brings several noteworthy points:
Weightage of Food Items
- The weight of food items in the CPI has decreased from 46 per cent to 36.8 per cent.
- In comparison:
- Private final consumption expenditure on food and beverages is around 31 per cent nominally and 28 per cent in real terms.
- For the National Statistics Office's Household Consumption Expenditure Survey (2023-24):
- Rural households have a 47 per cent share of food.
- Urban households have 39.7 per cent.
- Food and beverages in the updated index hold a weight of 42 per cent in rural areas and 30 per cent in urban areas.
International Comparison
The weightage of food in consumer price indices varies across countries:
- United States: 13-14 per cent
- Germany: Similar to the US
- United Kingdom: 11-12 per cent
- France: 16 per cent
- Italy: 18 per cent
- Japan: 26 per cent
- Emerging markets like China, Brazil, and South Africa have food constituting 20-26 per cent.
- East Asian economies, such as Vietnam (34-35 per cent) and Malaysia (30 per cent), have higher shares.
Implications for India
- The reduced share of food in the price index suggests less volatility in headline inflation due to wide price swings in food products.
- This shift may affect monetary policy, with core inflation having more significance.
- A prolonged pause by the Monetary Policy Committee is anticipated, given the higher weight and persistent core inflation.
Note: The analysis reflects the personal views of the chief economist at Bank of Baroda.
