India may finally measure housing inflation accurately

livemint.com:

NEW DELHI : Official statistics can sometimes seem at odds with ground realities. This is a debate usually confined to growth numbers, with the legitimacy of high growth often questioned on the basis of anecdotal evidence or an underlying data point. However, when it comes to inflation, it is no secret that the Consumer Price Index (CPI) needs a complete overhaul.

And while the high weight of food items in the CPI basket hogs the headlines, the issue with housing is entirely different and rather mind-boggling. Consider the past 15 months or so, when CPI housing inflation gradually eased from almost 5% in March 2023 to just 2.56% in May 2024. Anyone who has tried to rent a home over this period would disagree, with property website Magicbricks’ Rental Index saying rents rose 16% year-on-year in the first three months of 2024 across 13 cities in the country.

While some alterations—such as in the weight of food items in the CPI basket—will improve the accuracy with which inflation is measured, given the changes in consumption patterns over the past decade, the computation of housing inflation needs a methodological revamp. Of 13,368 dwellings across 310 towns surveyed by the ministry of statistics and programme implementation (MoSPI) to calculate housing inflation, nearly 2,000 are houses provided by central and state governments and public sector undertakings (PSUs). This results in government quarters constituting 1.3% of the entire CPI, according to a Reserve Bank of India (RBI) staff paper.