Consumer price inflation jumps to 5.11% in January as base year shifts to 2012

A change in the base year has led the consumer price inflation rates in the country to move higher, as in the case of GDP growth rate, which tends to negate the benefits of the fall in global crude oil prices to policy-makers.

As in the case of GDP, which has been projected to grow at 7.4 per cent in the current fiscal, up from 6.9 per cent in the previous fiscal (which again is up from 4.6 per cent projected earlier as per the previous base year), consumer price inflation in India moved up to 5.11 per cent in January, from 5 per cent in December and 4.38 per cent in November, it has now been estimated.

Consumer price inflation based on the revised series of consumer price index numbers (base 2012=100) rose 5.11 per cent year-on-year in January 2015.

While a slump in global oil prices has unleashed a wave of monetary easing around the world as central bankers try to stave off deflation and bolster their economies, the Reserve Bank of India, on the other hand, may be forced to tighten monetary policy on the back of a spike in inflation, although caused by a shift in the base.

Provisional indices for January 2015 released by the Central Statistics Office (CSO) showed consumer price inflation rose at a higher pace of 5.25 per cent in rural areas while inflation rate for urban consumers was lower at 4.96 per cent, with the combined inflation rate rising at 5.11 per cent.

Food price inflation for rural areas was lower at 5.69 per cent compared with 6.96 per cent for urban areas while the combined rate of food inflation stood at 6.06 per cent.

The new CPI basket will have 448 items, up from (437 earlier) in rural and 460 (up from 450) in urban at all India level. The revised series includes 11 new priced items, without dropping any item, in rural sector at all India level. In the case of urban data, 7 priced items have been dropped and 17 new priced items have been added.

From January 2016 onwards, inflation rates would be computed using the actual CPI of the revised series, using geometric mean (GM) of the price relatives of current prices with respect to base prices of different markets in consonance with the international practice.

In the old series, arithmetic mean (AM) was used for that purpose, the release said, adding that the use of GM will help moderate the volatility of the indices as GM is less affected by extreme values.

The number of groups, which was five in the old series, has now been increased to six. 'Pan, tobacco and intoxicants', which was a sub-group under the group 'Food, beverages and Tobacco', has now been made as a separate group. Accordingly, the group 'Food, beverages and Tobacco' has been changed to 'Food and beverages'.

Eggs, which weere part of the sub-group 'Egg, fish and meat' in the old series, have now been made as a separate sub-group. Accordingly, the earlier sub-group has been modified as 'Meat and fish'.

The elementary / item indices are now being computed using geometric mean (GM) of the price relatives of current prices with respect to base prices of different markets in consonance with the international practice. In the old series, arithmetic mean (AM) was used for that purpose. The advantage of using GM is that it moderates the volatility of the indices as GM is less affected by extreme values.

Prices of PDS items under Antyodaya Anna Yojana (AAY) have also been included for compilation of indices of PDS items, in addition to Above Poverty Line (APL) and Below Poverty Line (BPL) prices being taken in the old series.

Sample size for collection of house rent data for compilation of house rent index, which was 6,684 rented dwellings in the old series, has now been doubled to 13,368 rented dwellings in the revised series.

Apart from all-India CPIs (rural, urban, combined) for sub-group, group and general index (all-groups), which were released for the old series, all India item CPIs (combined) would also be available in the public domain for the users.
The consumer food price indices (rural, urban, combined) are being compiled as weighted average of the indices of following sub-groups, as practiced earlier in the old series (only the weights have been revised).