Economic survey calls for greater focus on core inflation
Jan 29, 2021
New Delhi [India], January 29 : The Economic Survey released on Friday pitched for shifting the focus from consumer price-based inflation (CPI) to core inflation.
It also called for revision of CPI's base year. The survey said the sole focus on CPI-Combined (CPI-C) inflation may not be appropriate as food inflation -- which contributes significantly to CPI-C -- is driven primarily by supply-side factors.
Given its role as the headline target for monetary policy, changes in CPI-C anchor inflation expectations. Besides, several components of food inflation are transitory with wide variations within the food and beverages group.
Food inflation has been driving overall CPI-C inflation due to the relatively higher weight of food items in the index, said the survey.
"While food habits have undergone revisions over the decade since 2011-12, which is base year of CPI, 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."
Hence a greater focus on core inflation is warranted, said the survey. Given significant increases in e-commerce transactions, new sources of price data capturing e-commerce transactions must get incorporated in the construction of price indices, according to the survey.
