Syllabus: Indian Economy and issues relating to planning, mobilization of resources, growth, development and employment.
Context
- October retail inflation fell to 0.25%, the lowest since January 2012.
- The decline is a statistical anomaly, not a genuine fall in prices.
Why the CPI Is Misleading
- Food and beverages category contracted 3.7%, the highest fall in the CPI series.
- The fall occurred due to a high base effect (food inflation was 9.7% in Oct 2024).
- Actual market prices of vegetables have been rising, contradicting CPI trends.
- Food and beverages hold 46% weight, pulling down overall inflation disproportionately.
- Most sub-groups — fuel and light, housing, tobacco, miscellaneous — showed higher inflation than last year.
- Only clothing and footwear showed lower inflation due to GST rate cuts.
Why CPI Needs Urgent Revision
- CPI uses an outdated base year (2012).
- Weightages no longer reflect India’s evolving consumption pattern.
- Current CPI often obscures true inflation, widening the gap with public perception.
- RBI surveys show perceived inflation at 7.4%, far above the official figure.
Policy Implications
- RBI’s Monetary Policy Committee depends on CPI to set interest rates.
- December policy meeting will face distorted inflation data and GST-related demand boosts.
- Faulty CPI complicates accurate monetary policymaking.
Way Forward
- The Ministry of Statistics has promised a new CPI series by Q1 of next financial year.
- Urgent revision is essential for credible inflation tracking and evidence-based policy.
Q- Explain how high base effects and outdated consumption weights can distort the measurement of inflation in India. (10 Marks)