Core group gains weight, while weights reduced from food and fuel groups
The government has revised the base year of the All India CPI series from 2010:100 to 2012:100 starting with the January 2015 reading to be released on 12 February 2015. The weights of the sub-components within the new CPI basket will be based on the Consumer Expenditure Survey (CES) of 2011-12, against the old/current basket individual weights based on CES of 2004-05.These changes reflect the falling share of household expenditure on food and the rising share of the non-food items. In addition, the number of items will also increase from 437 to 448 in the rural basket and from 450 to 460 in the urban basket.
Compared with the old basket, the weights of the food and fuel groups have been reduced in the new basket. Meanwhile, the weights of the miscellaneous and clothing, bedding and footwear groups have been increased. With these changes, the weight of the Core group (CPI ex-food and fuel) will rise to 47.3% from 42.9% earlier.
Sonal Varma, India Economist, Nomura Financial Advisory Services, said, "Using the old component level indexes and the new weights, we have estimated the new CPI series (based on the 2011-12 CES). Our estimates show that headline and core CPI inflation based on the new weights are unlikely to be very different from that based on the old basket. This is because the positive impact (i.e. lower headline CPI inflation) due to the weight transfer from food (high inflation) to the core basket (medium inflation) is likely to be offset by the weight transfer from fuel and light (low inflation) to the core basket."
"The government has not yet released the weights of the individual items under the broad groups. However, comparing the CES 2011-12 and 2004-05 we reckon that within the food basket most of the weight loss would be largely on account of the lower weight for cereals, and within the core basket the weight increase is likely to be fairly broad-based across sub-groups such as medical services, education, recreation etc", Sonal Varma, India Economist, Nomura Financial Advisory Services added.
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