Survey moots change in weighage of food items to gauge true inflation

CHENNAI: The Economic Survey has suggested focusing on core inflation to get a clear picture of the inflation in the country. The Survey highlights that sole focus on combined CPI inflation may not be appropriate. The current spike in consumer price-based retail inflation of food prices is mainly a supply-side phenomenon, it noted.

According to the Survey, while food habits have undergone revisions since 2011-12, which is the CPI base year, the same is not reflected in the index yet. The base year of CPI, therefore, needs to be revised to overcome the measurement error that may be arising from the change in food habits. “For all these reasons, a greater focus on core inflation is warranted,” it says. 

The Survey further states that given the significant increase in e-commerce transactions, new sources of price data capturing e-commerce transactions must get incorporated in the construction of price indices.

The Economic Survey 2020-21 has suggested revision in the weightage of food items.

 “There is a need to capture the revised weight of food items in the index to correctly depict the true picture of inflation in the country”.

The Survey says that going forward, as food inflation eases further, overall inflation is expected to moderate. It says that easing of supply side restrictions, which saw inflation moderate in December 2020, are expected to continue this easing.

During 2020-21, retail and wholesale inflation saw movements in the opposite directions. While headline retail inflation saw an increase compared to the previous year, WPI inflation remained benign.

Supply-side shocks especially owing to COVID-19 pandemic affected the retail inflation with food articles contributing to the overall rise in inflation, said the Survey.

Thali costs have increased between June 2020 and November 2020, they witnessed a sharp fall in the month of December reflecting the fall in the prices of many essential food commodities, as per the Survey.

6.6% Avarage headline CPI inflation in FY21 (April-Dec)