While calculating the consumer price index, 'housing' as an item is classified as:

Correct — D, Core service. Two separate decisions are folded into this one option, and both go the same way. First, is housing inside core? Core inflation is the headline consumer price index with food and energy stripped out, because those two are the volatile, supply-shock-driven parts. Housing is neither, so it stays in — it is a core item. Second, is it a good or a service? In the Indian CPI the housing group is not the price of a house; it is house rent, collected from a rent survey and compiled for the urban sector only, since rural housing is not covered by this group. Paying rent is buying the use of shelter, which is a service, not the purchase of an object that can be classed as durable or non-durable. Putting the two together gives a core service, and that is exactly how the official documents treat it: the Economic Survey's annexure on the composition of core inflation puts the entire housing group, weight 10.1, under core services and none of it under core goods, and the Survey's narrative attributes a rise in core services inflation to house rents going up as people returned to the cities after the pandemic.

• (a)Core consumer durable — Consumer durables are long-lived physical articles — a refrigerator, a television, footwear in the CPI's own splits. Rent buys no object at all, so nothing is left to wear out.
• (b)Core consumer non-durable — Non-durables are goods consumed quickly, such as toiletries or stationery. Housing is still a service however fast the rent is paid; the durable and non-durable split applies only within core goods.
• (c)Core capital goods — Capital goods belong to production statistics such as the index of industrial production, not to a consumer price index, which by definition measures what households buy for their own use.

India's Consumer Price Index on base 2012 is built from six major groups — food and beverages; pan, tobacco and intoxicants; clothing and footwear; housing; fuel and light; and miscellaneous. The housing group is compiled from house rent for the urban sector. Core inflation is derived from this basket by excluding food and energy, leaving the part of the index that reflects underlying, more persistent price pressure. That core is then commonly split again into core goods, which divide into consumer durables and consumer non-durables, and core services, which cover items such as house rent, education, health services, transport and communication services and personal services.

The option wording does the teaching here: every option begins with 'core', so the examiner has already conceded the first half of the problem and is testing only the goods-versus-services half. That is worth noticing under time pressure, because it means you do not have to reason about food and fuel at all. The second half then turns on what the housing group actually measures. Candidates who picture a house — a large, long-lasting object — reach for consumer durable; candidates who remember that the index records rent see a service immediately. Note also the asymmetry that makes housing distinctive: it is the one CPI group that exists for urban India but not for rural India, which is why the rural and urban baskets have different group weights, and why the housing group has a weight of about ten in the combined index. Rent is also unusually sticky, which is one reason core services inflation moves more slowly than food inflation and is watched closely by the Reserve Bank.

• Core inflation is measured by excluding food and energy items from CPI headline inflation.
• Annexure 1 to Chapter 3 of the Economic Survey 2023-24 lists the groups used to derive the core indices and places Housing entirely under core services — 10 items, weight 10.1 — with no items under core goods.
• The CPI housing group is compiled from house rent and is available for the urban sector only, which is why rural and urban baskets differ.
• Core goods are split further into consumer durables and consumer non-durables; that split applies to goods only and never to housing.
• The Economic Survey attributes the FY23 firming of core services inflation to house rents rising as people returned to urban areas after the pandemic.
• Capital goods are a category of production statistics such as the index of industrial production, not of a consumer price index.

• Picturing a house rather than the rent, and so calling housing a consumer durable.
• Assuming core excludes housing because rent is a large household outgo; core excludes only food and energy.
• Importing 'capital goods' from industrial production data into a consumer price index, where the category does not exist.

As a classification item like this one, or in reverse — which group is absent from rural CPI, or which items make up core services. Weights of the CPI groups are a separate favourite.

• practice — not a real PYQ

  In India's Consumer Price Index (base 2012), the housing group is compiled mainly from which one of the following?

  • (a)Prices of newly constructed dwellings
  • (b)House rent collected through a rent survey
  • (c)Registered property transaction values
  • (d)Municipal property tax assessments

  Answer(b) House rent collected through a rent survey — and the group is compiled for the urban sector only, which is why rural and urban CPI baskets differ.

• practice — not a real PYQ

  Core inflation in India is best described as which one of the following?

  • (a)CPI headline inflation excluding food and energy items
  • (b)CPI headline inflation excluding services
  • (c)WPI inflation excluding manufactured products
  • (d)The average of CPI and WPI inflation

  Answer(a) CPI headline inflation excluding food and energy items — those two are stripped out because they are the most volatile, supply-shock-driven parts of the basket.