Citing possible inaccuries in the Consumer Price Index - Combined (CPI-C) inflation, the Economic Survey 2020-21 said that greater focus should be given on core inflation, the costs of goods and services excluding food and energy sectors.
The Economic Survey, tabled in the parliament on Friday, found that sole focus on CPI-C inflation may not be appropriate for four reasons. The first reason being food inflation, which contributes significantly to CPI-C and is driven primarily by supply-side factors.
"Second, given its role as the headline target for monetary policy, changes in CPI-C anchor inflation expectations. This occurs despite inflation in CPI-C being driven by supplyside factors that drive food inflation," it said.
Further it noted that several components of food inflation are transitory with wide variations within the food and beverages group. It also said that food inflation has been driving overall CPI-C inflation due to the relatively higher weight of food items in the index.
While food habits have undergone revisions over the decade since 2011-12, which is base year of CPI, the same is not reflected in the index yet, it said, adding that the base year of CPI therefore needs to be revised to overcome the measurement error that may be arising from the change in food habits.
"For all these reasons, a greater focus on core inflation is warranted," the document said.
Further, given the significant increases in e-commerce transactions, new sources of price data capturing e-commerce transactions must get incorporated in the construction of price indices, suggested the survey.