Govt panel considering major cut to food weighting in new CPI basket

The panel, under the statistics ministry, is discussing a proposal to reduce the weight of food in the consumer price basket by as much as 8 percentage points, according to the person, who asked not to be identified as the discussions are private. The food and beverage category makes up 54.2 per cent of the current CPI basket.

The CPI is currently based on consumer spending patterns surveyed in 2011-2012, which economists say are outdated and may be distorting the official inflation data the central bank uses to set interest rates. More recent surveys show consumers are spending less of their budget on food than they did a decade ago. Bloomberg Economics estimates inflation in June was 70 basis points higher than it would have been using new weights.

A spokesman for the Ministry of Statistics and Program Implementation didn’t immediately respond to an emailed request for further information.

The Reserve Bank of India has kept interest rates unchanged for more than a year, and stuck to a relatively hawkish stance given inflation is above its 4 per cent target. Economists surveyed by Bloomberg predict the RBI will likely hold again on Thursday.

Food is a big driver of inflation in India given its high weighting in the CPI basket. In June, food prices rose 9.36 per cent from a year earlier, pushing up the headline inflation rate to 5.08 per cent. Excluding food and energy costs, inflation was 3.15 per cent.