India's January Inflation Rate is 2.75% with New Measuring System

India's inflation rate for January was 2.75%. This is the first time a new system was used to measure prices. The new system includes more items people buy today, like streaming services. This helps show a clearer picture of the economy.
By Newsroom | India, Economy |

The recent release of India's Consumer Price Index (CPI) for January, showing an inflation rate of 2.75%, marks a significant shift. This figure is the first reported under a newly revised measurement system, which introduces a new base year and expands the range of goods and services tracked. This change is intended to provide a more accurate picture of current consumer spending habits. The inflation rate for January positions itself within the Reserve Bank of India's (RBI) target band, a key consideration for monetary policy decisions.

CPI inflation for January recorded at 2.75% under new base year - 1

Context of the Revised Inflation Measurement

The revision of the CPI base year to 2024 is a planned exercise by the Ministry of Statistics & Programme Implementation (MoSPI). This process aims to ensure that the inflation index reflects contemporary consumption patterns, which have evolved over time. The previous base year was 2012.

Read More: India Says US Factsheet Changes Match Trade Deal Understanding

CPI inflation for January recorded at 2.75% under new base year - 2

Key aspects of this revision include:

  • Expansion of the Consumption Basket: The number of items tracked has increased from 299 to 358. This includes new-age items and services like:

  • Rural housing (including rent)

  • Online media services and streaming subscriptions

  • Value-added dairy products

  • CNG and PNG fuels

  • Pen drives and external hard disks

  • Babysitter services and exercise equipment

  • Updated Weighting: The revised basket also shifts the weight given to different categories. Non-food items now constitute over 60% of the basket, with a greater emphasis on housing, transport, health, and other services. For example, the weight of food items has been reduced to 36.8%.

  • Improved Data Coverage: The inclusion of rural house rent for the first time aims to enhance the accuracy of housing inflation calculations, by incorporating a composite index that covers actual rental payments and dwelling maintenance.

  • Expert Group Involvement: The revision was guided by an Expert Group that included representatives from the Reserve Bank of India, academic institutions, line ministries, and statistical experts.

Read More: New Ideas Say Capitalism Makes Climate Problems Worse

The government also plans to release GDP data under a revised base year on February 27th.

CPI inflation for January recorded at 2.75% under new base year - 3

January Inflation Figures Under the New System

The headline CPI inflation for January was reported at 2.75%. This figure represents the first official reading under the new CPI series with a 2024 base year.

CPI inflation for January recorded at 2.75% under new base year - 4

Key components of the January inflation data include:

  • Food Inflation: Recorded at 2.13%. While some reports suggest food inflation is higher under the new series compared to previous projections, it remains contained.

  • Housing Inflation: Stood at 2.05%. This component aims to better capture costs through the inclusion of rural housing and a composite index for rental payments and dwelling upkeep. Housing prices saw a 2.39% rise in rural areas and 1.92% in urban areas.

  • Core Inflation: Generally viewed as moderate, reflecting steady price pressures in services like education, health, and transport, excluding volatile food and fuel prices.

  • Rural vs. Urban Inflation: Rural CPI inflation was slightly below the headline figure at 2.73%, while urban CPI inflation was marginally higher at 2.77%, indicating broad-based price stability.

Shifts in Consumption Patterns Reflected

The new CPI series is designed to provide a more granular and up-to-date reflection of household spending. The increased weight on services and new-age digital products suggests a shift in consumer priorities and lifestyles. For instance, the inclusion of streaming services and digital storage devices highlights their growing importance in modern consumption. Conversely, older items like VCRs and tape recorders have been removed.

Read More: Italy Wins First T20 World Cup Match Against Nepal

  • New Inclusions:

  • Rural housing

  • Online media/streaming services

  • Value-added dairy products

  • Barley and its products

  • Pen-drives and external hard disks

  • Attendant, babysitter, and exercise equipment

  • CNG/PNG fuels

  • Previous Inclusions Removed:

  • VCR, DVD players

  • Radio, tape recorders

  • Second-hand clothing

  • Coir or rope

Implications for Economic Analysis and Policy

The updated CPI series has several implications:

  • Monetary Policy Assessment: The RBI relies on CPI data to guide its monetary policy. The current inflation print of 2.75% falls within the RBI's target band, which may influence future decisions regarding interest rates. Some analysts suggest this could lead the RBI to maintain its current stance for an extended period.

  • Economic Projections: Revised base years for key indicators like GDP, CPI, and IIP are expected to improve the quality and usability of data for economic forecasting, particularly for AI and machine learning applications.

  • Understanding Inflation Drivers: The disaggregated data under the new series provides a clearer picture of inflationary pressures across different sectors, allowing for more targeted analysis of price movements. For example, sharp rises were noted in silver jewellery (159.67%) and gold jewellery (46.77%), attributed to global precious metal prices and demand.

Read More: UK Economy Grows Very Slowly

"The revision of base years for key economic indicators such as GDP, Consumer Price Index (CPI) inflation and the Index of Industrial Production (IIP) is expected to significantly improve the quality and usability of data for artificial intelligence (AI) and machine learning applications." - Saurabh Garg, Secretary, MoSPI (as quoted in Article 2)

Conclusion: A Refined View of India's Economy

The introduction of the 2024 CPI base year signifies a concerted effort to align economic measurement with current realities. The 2.75% inflation rate for January, reported under this new framework, provides a baseline for future assessments. The expanded basket and adjusted weightings are intended to offer a more nuanced understanding of inflation dynamics.

The inclusion of rural housing and digital services, among other items, reflects the evolving nature of household expenditures. This revision is a crucial step for policymakers, researchers, and the public to gauge the true cost of living and the effectiveness of economic policies. Future inflation prints will be vital in understanding trends and their impact on the economy, especially in light of the RBI's inflation targets.

Sources

Read More: Indian Railways Plans Big Upgrades for Better Travel and Goods Transport

Frequently Asked Questions

Q: What is the new inflation rate for India in January?
The inflation rate for January is 2.75%. This is the first report using a new way to measure prices.
Q: What is different about the new measurement system?
The new system uses a later year as a base and tracks more items. It now includes things like streaming services and rural housing costs.
Q: Why is this change important?
The new system gives a more accurate idea of how prices are changing for people today. This helps the government and banks make better decisions.
Q: How does this affect the Reserve Bank of India?
The inflation rate of 2.75% is within the target set by the Reserve Bank of India. This might mean they keep current money rules the same for now.