Consumer Price Index: Methodological Aspects of Measuring Housing Services

Abstract

India's Ministry of Statistics and Programme Implementation (MoSPI) is undertaking a crucial revision of the Consumer Price Index (CPI) Base to 2024 = 100. Within this comprehensive update, the methodological approach to measuring housing services is of strategic national importance. This component carries a significant weight of 10.07% in the present (2012 = 100) overall CPI basket and a commanding 21.67% in the urban CPI. Recognizing its prominence, MoSPI initiated a consultative process, including the release of a Discussion Paper (DP), to propose a significant overhaul of the housing index compilation methodology. We carryout an in-depth analyse of the DP and conclude that, expanding house rent measurement to rural areas; excluding employer provided dwellings for measuring rent; and using Census 2011 frame, are desirable changes. Contrastingly, method proposed by MoSPI of visiting over 25,000 sample dwellings each month, under the premise that the extant housing index compilation method is defective; doing away with the current and robust panel-based housing index methodology; and bringing in arithmetic mean in elementary index calculations, will be sub-optimal. Data-driven decision-making would be accurate not only by collecting the correct data but also by correctly aggregating the same through precise summary statistics and measures. The sample survey-based house rent index compilation is an exercise of national importance as it contributes significantly towards inflation measurement of the country.