New CPI index is less volatile, suggests prolonged pause on rates: Indian Express 17th Feb 2026

 The new CPI index with the updated basket of goods and services shows inflation at 2.8 per cent in January. While the number was expected to be in this region, the composition of the index merits attention. The weight of food items is now 36.8 per cent as against almost 46 per cent earlier. This sharp fall of almost 10 per cent is significant. But the share is still higher than that in other metrics. For instance, in the private final consumption expenditure data, the share of food and beverages is around 31 per cent in nominal terms and 28 per cent in real terms.

In the National Statistics Office’s Household Consumption Expenditure Survey for 2023-24, the share of food is 47 per cent for rural households and 39.7 per cent for urban households. If values are assigned to the free food being provided by the government, the shares go up by 0.9-1.4 per cent. In comparison, in the new index, food and beverages have a weight of 42 per cent in rural and 30 per cent in urban areas.

It is interesting to see how the weightage of the food basket in consumer price indices varies in other countries. In the US, the share of food is around 13-14 per cent. It is at similar levels in Germany. In the UK, it is lower at 11-12 per cent, while in France, it is higher at around 16 per cent. In Italy, it is closer to 18 per cent. Japan probably has the highest share among developed countries at 26 per cent. Among these high-income countries, we find a higher weightage of around 8-15 per cent for education and recreation. As India continues on its development trajectory, it should also witness a similar trend. In these countries, as food has a lower share, monetary policy is more effective as several components of household consumption like housing and automobiles have considerable weight in the price index.

In emerging markets, while the share of food is slightly higher when compared to high-income countries, it is still well below that of India. In China, it ranges between 20 and 25 per cent. It is 20-26 per cent in Brazil and 17-18 per cent in South Africa. This indicates that none of these major economies has food constituting more than 30 per cent of the price index. However, in the case of East Asian economies, the situation is slightly different and closer to India. For instance, Vietnam is close at around 34-35 per cent. But this includes takeaway food as well. Malaysia is next with a share of almost 30 per cent, followed by Indonesia at 25 per cent.

For India, the decline in the share of food in the price index does suggest it will make headline inflation less volatile as food products normally witness wide price swings. This will have implications for monetary policy. Given that core inflation has been higher so far and has greater weight in the index, we can expect a prolonged pause by the Monetary Policy Committee this year.