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India could also be misreading retail inflation knowledge after the newest Household Consumption Expenditure Survey (HCES) 2022–23, launched on February 23, 2024, revealed that the share of expenditure on meals and cereal consumption of a median household has declined sharply.
Spending on discretionary objects akin to sturdy items like televisions and fridges has risen dramatically over the previous decade or so, the consumption knowledge confirmed. At the identical time, Indians are spending much less on meals, notably cereals like rice and wheat.
The share of meals in rural Indians’ family budgets dipped under the 50% mark for the primary time in 2022–23 since 1950-51, when the info started to be collected, the outcomes of the long-awaited HCES 2022–23 revealed.
People are spending much less on cereals and pulses, however extra on drinks, refreshments and processed meals objects. In the non-food class, customers are spending extra on transport, providers and sturdy white items.
These findings are in step with what is called Engel’s legislation in economics. As individuals transfer up the revenue ladder, their spending on meals, as a proportion of their general month-to-month spending, decreases.
The HCES 2022–23 exhibits that common rural client spending rose to an estimated ₹3,773 a month per particular person for the 12 months by way of July 2023 from ₹1,430 within the earlier survey in 2011–12. Urban spending rose to ₹6,459 from ₹2,630.
The new survey will now should type the idea of a evaluate of India’s Consumer Price Inflation Index, or CPI, which measures retail inflation. One key purpose for that is that meals accounts for roughly half of the CPI.
“The latest consumer expenditure survey gives insight into spending patterns of Indian households and is key to gauging demand in the economy. The data will also be used by the government to readjust items considered for calculating retail inflation and gross domestic product data,” the survey report said.
The newest survey exhibits that general meals consumption as a proportion in rural areas has decreased from almost 60% in 1999-2000 and 53% in 2011-12 to 46% at present. The spending patterns in cities present the same development: meals consumption fell to 39% from 43% in 2011-12.
“The CPI will need to be readjusted and recalibrated to represent current consumption patterns,” mentioned BVR Subrahamanyam, CEO of the central authorities suppose tank, Niti Aayog. This means the share of meals and cereals will go down in it.
To calculate retail inflation, economists assign weights to totally different commodities within the CPI basket to mirror spending patterns. More expenditure on meals means extra weight assigned to it. In the present CPI, due to this fact, the weightage given to meals expenditure is outdated.
This means inflation in India has been overestimating meals inflation, Subrahmanyam mentioned. When the CPI is readjusted to mirror newer spending patterns, meals will contribute much less to CPI inflation.
To ensure, the Niti Aayog will conduct another survey spherical to get a extra correct image of consumption habits earlier than heading to the drafting board to rebalance the CPI, mentioned economist Pronab Sen, the top of a authorities committee on statistics.
The authorities will conduct one other HCES between August 2023 and July 2024, which can then be used to make adjustments within the CPI index. The new CPI index will probably be nearer to the spending patterns and consumption habits and worth adjustments within the bigger economic system, he mentioned.
India could also be misreading retail inflation knowledge after the newest Household Consumption Expenditure Survey (HCES) 2022–23, launched on February 23, 2024, revealed that the share of expenditure on meals and cereal consumption of a median household has declined sharply.
Spending on discretionary objects akin to sturdy items like televisions and fridges has risen dramatically over the previous decade or so, the consumption knowledge confirmed. At the identical time, Indians are spending much less on meals, notably cereals like rice and wheat.
The share of meals in rural Indians’ family budgets dipped under the 50% mark for the primary time in 2022–23 since 1950-51, when the info started to be collected, the outcomes of the long-awaited HCES 2022–23 revealed.
People are spending much less on cereals and pulses, however extra on drinks, refreshments and processed meals objects. In the non-food class, customers are spending extra on transport, providers and sturdy white items.
These findings are in step with what is called Engel’s legislation in economics. As individuals transfer up the revenue ladder, their spending on meals, as a proportion of their general month-to-month spending, decreases.
The HCES 2022–23 exhibits that common rural client spending rose to an estimated ₹3,773 a month per particular person for the 12 months by way of July 2023 from ₹1,430 within the earlier survey in 2011–12. Urban spending rose to ₹6,459 from ₹2,630.
The new survey will now should type the idea of a evaluate of India’s Consumer Price Inflation Index, or CPI, which measures retail inflation. One key purpose for that is that meals accounts for roughly half of the CPI.
“The latest consumer expenditure survey gives insight into spending patterns of Indian households and is key to gauging demand in the economy. The data will also be used by the government to readjust items considered for calculating retail inflation and gross domestic product data,” the survey report said.
The newest survey exhibits that general meals consumption as a proportion in rural areas has decreased from almost 60% in 1999-2000 and 53% in 2011-12 to 46% at present. The spending patterns in cities present the same development: meals consumption fell to 39% from 43% in 2011-12.
“The CPI will need to be readjusted and recalibrated to represent current consumption patterns,” mentioned BVR Subrahamanyam, CEO of the central authorities suppose tank, Niti Aayog. This means the share of meals and cereals will go down in it.
To calculate retail inflation, economists assign weights to totally different commodities within the CPI basket to mirror spending patterns. More expenditure on meals means extra weight assigned to it. In the present CPI, due to this fact, the weightage given to meals expenditure is outdated.
This means inflation in India has been overestimating meals inflation, Subrahmanyam mentioned. When the CPI is readjusted to mirror newer spending patterns, meals will contribute much less to CPI inflation.
To ensure, the Niti Aayog will conduct another survey spherical to get a extra correct image of consumption habits earlier than heading to the drafting board to rebalance the CPI, mentioned economist Pronab Sen, the top of a authorities committee on statistics.
The authorities will conduct one other HCES between August 2023 and July 2024, which can then be used to make adjustments within the CPI index. The new CPI index will probably be nearer to the spending patterns and consumption habits and worth adjustments within the bigger economic system, he mentioned.
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