NEW DELHI: The new consumer price index (CPI) series will measure housing inflation in rural areas, in tune with shifting consumption patterns and emergence of rental markets beyond urban centres, official sources said.
At present, housing is only measured as a part of urban inflation because there are only a minuscule number of rented homes in rural areas.
“Over the past few years, it has been observed in consumption surveys that people are spending on house rent in rural areas as well. While people traditionally spent on housing in urban areas only, a change in preference and increased mobility for work and other reasons means that the housing market is also flourishing in rural areas,” one of the sources said.
The new CPI series with an updated base year is slated to come into effect in February 2026, along with a new series for other macro indicators like gross domestic product and index of industrial production.
The statistics ministry will be using 2024 as the base year for the upcoming CPI series. The Household Consumption Expenditure Survey (HCES) 2022-23 released last year is being used to prepare this new series.
HCES 2022-23 showed that the average monthly per capita expenditure (MPCE) on “housing” in rural areas increased nearly five times to ₹30 from ₹7 spent during the previous HCES which was conducted in 2011-12. As a share of total expenditure, its share doubled to 0.8 per cent from 0.4 per cent during the same period.
In contrast, the average MPCE on housing in urban areas stood at ₹423 in 2022-23 from ₹160 in 2011-12. As a share of total expenditure, it stood at 6.6 per cent in 2022-23.
Paras Jasrai, senior economic analyst, India Ratings, said that the move to include housing inflation will help better capture data on parameters like housing rental and better track the real estate market in rural areas.
“Though the real estate market in rural areas is quite nascent, it is a welcome move. However, it won’t have much impact on the retail inflation figure, as the weight is going to be quite low. Also, both the central and state governments run subsidised housing programmes to keep prices in check. Hence, there should be methodological clarity on how to resolve these issues,” he added.
The new CPI basket will exclude government housing from the housing inflation calculation as it exerts an outsized influence on the headline inflation rate due to the methodology that is used to calculate housing inflation, even though government housing – central, state, and those provided by public sector undertakings – makes up less than 1.5 per cent of the entire CPI basket.
“The use of house rent allowance as a proxy for rent in case of government housing is problematic as housing inflation is determined by the occupant and not demand-supply forces. If a government employee living in a house is replaced by a junior staff member, the rent of that same house would fall because the new occupant’s house rent allowance is lower,” the official added.
Source: Business Standard
Reserve Bank Of India Likely To Go For 25 Basis Points Rate Cut 