Why the Central Statistics Office has notified a new series of Consumer Price Index from this year ?

How to Approach

This question requires understanding the reasons behind the revision of the Consumer Price Index (CPI) series by the Central Statistics Office (CSO). The answer should focus on the methodological changes, the base year revision, and the rationale for these changes – improved data collection, representation of current consumption patterns, and better comparability with international standards. A concise and factual answer is expected, given the 5-mark and 50-word limit.

Model Answer

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Introduction

The Central Statistics Office (CSO), under the Ministry of Statistics and Programme Implementation, notified a new series of the Consumer Price Index (CPI) in 2024. CPI measures changes in the price level of a basket of goods and services purchased by households. The revision was undertaken to reflect evolving consumption patterns and improve the index’s accuracy and relevance for policy-making and economic analysis.

The new CPI series was notified due to:

Methodological Improvements

Base Year Revision: The base year was shifted from 2012 to 2022 to reflect current consumption patterns.
Data Collection: Enhanced data collection methods, including increased sample size and use of technology, were implemented.
Item Basket Revision: The basket of goods and services was updated to include new items and adjust weights based on the latest Household Consumption Expenditure Survey (HCES).

Rationale for Revision

Accurate Inflation Measurement: To provide a more accurate measure of inflation, crucial for monetary policy formulation by the Reserve Bank of India (RBI).
Improved Representation: To better represent the consumption patterns of different socio-economic groups.
International Comparability: To align with international standards for CPI calculation, facilitating global comparisons.

The CPI is a key indicator used for adjusting dearness allowance (DA) for government employees and pensioners.

Conclusion

The notification of the new CPI series by the CSO is a crucial step towards ensuring a more accurate and representative measure of inflation in India. This revision will aid in better policy formulation, particularly in monetary policy and social welfare programs, reflecting the changing economic realities of the country.

Answer Length

This is a comprehensive model answer for learning purposes and may exceed the word limit. In the exam, always adhere to the prescribed word count.

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Additional Resources

Key Definitions

Consumer Price Index (CPI)

A statistical measure showing how the average price of a standard basket of goods and services changes over time. It is a key indicator of inflation.

Base Year

The base year is a reference year used to compare price changes over time. It is assigned an index value of 100, and subsequent price changes are expressed as a percentage of this base value.

Key Statistics

As per the National Statistical Office (NSO), retail inflation, measured by CPI, averaged 5.4% in FY23 (April-March).

Source: National Statistical Office (NSO), 2023

The Household Consumption Expenditure Survey (HCES) conducted by the NSO revealed significant changes in consumption patterns between 2012 and 2022, necessitating a base year revision.

Source: National Statistical Office (NSO), latest HCES data (as of knowledge cutoff)

Examples

Impact on Dearness Allowance

The CPI is used to calculate Dearness Allowance (DA) for government employees. An increase in CPI leads to an increase in DA, helping employees cope with rising living costs.

Frequently Asked Questions

▶What is the difference between CPI and WPI?

CPI measures changes in prices from the perspective of consumers, while WPI (Wholesale Price Index) measures changes in prices from the perspective of producers. CPI focuses on retail prices, while WPI focuses on wholesale prices.

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