Volatile items get lower weight in CPI; rural share still above urban

Food's share in CPI falls sharply in 2024 series, boosting core inflation's role; rural weight declines but remains higher than urban consumption

Items such as food and oil, whose prices fluctuate, have a lower weighting in the consumer price index (CPI) of the new series of 2024.

 

Food’s weighting in the CPI declined by nearly 8 percentage points -- from 42.71 per cent in 2010 to 34.78 per cent in 2024. In the 2012 series, it was 39.06 per cent. 

 

Similarly, the weighting of the category “fuel and light” has reduced by 4 percentage points. 

 

“The decline reflects changes in consumption patterns over time. As incomes rise, people tend to diversify their consumption basket. With higher income, consumers spend less on essential items like food,” former chief statistician Pronab Sen told Business Standard. 

 

This implies that the core inflation rate, which excludes food and oil, would influence the rate of retail price changes more in the new series as against the previous ones in a broader sense.

 

Many experts say the core inflation rate is a good indicator of prices and the Reserve Bank of India’s monetary policy should be based on that segment. 

 

Weightings in the miscellaneous category, covering services like transport, health care, education and communication, increased nearly 7 percentage points from 26.31 per cent in 2010 to 33.15 per cent in 2024, marginally less than that for food items.

 

Rural areas’ weighting dropped by nearly 3 percentage points -- from 58.07 per cent in 2010 to 55.42 per cent in 2024 -- while urban areas gained proportionally, rising from 41.93 per cent to 44.58 per cent during the same period.

 

The weighting of rural areas stood at 57.36 per cent and that of urban areas at 42.64 per cent in the 2012 series. 

 

This rebalancing reflects India’s rapid urbanisation and the faster growth of urban consumption relative to rural areas. 

 

Sen said: “Rural and urban weightings are determined by their respective shares in consumption. If urban population increases due to migration, or if urban consumption grows faster than rural consumption, then the urban weighting will increase.” 

 

For the first time, the housing segment included rural areas.