Housing inflation started rising sharply since July 2017 and reached 8.3 per cent in 2018, according to a study by the RBI.

Housing inflation, which was in high single-digit (9.2 per cent) in 2012, gradually decelerated and averaged 5 per cent in 2015 and 2016. The recent trough in housing inflation was in June 2017 at 4.7 per cent.

“Since July 2017, housing index in CPI (consumer price index) is inclusive of the impact of the 7th Central Pay Commission’s HRA (house rent allowance) increase….the HRA increase gradually pushed up headline inflation by 35 basis points, and the impact remained till the latest data print of March 2018.

“The corresponding impact was more than double in CPI, excluding food and fuel, as house rent has a weight of 20.1 per cent in it,” according to the study, ‘Impact of Increase in House Rent Allowance on CPI Inflation’, by Praggya Das, Director, Monetary Policy Department. Several State governments such as Rajasthan, Tamil Nadu, Assam and Delhi have announced increase in pay and allowances for their employees similar to that of the 7th CPC.

These four States, for instance, together have a weight of 17.3 per cent in CPI.

Given this weight and the timings of increase in HRA for these States, the headline CPI, according to Das, should have been further pushed up by 11-12 bps by December 2017.

“However, up to March 2018, there appears to be no impact on CPI inflation due to State governments’ pay and allowances revisions. This may be due to several reasons.

“First, administrative delays may lead to a lag between announcements and actual disbursals of allowances. Second, the disbursals may be partial or dispersed over a period depending on the States’ discretions/constraints and, may, therefore, show a muted impact on CPI,” said the study.

Third, even if disbursements have been made, the representation of State government houses in the sample of dwellings may not be adequate to capture the impact, it added.

Das elaborated that RBI, through the Monetary Policy Reports and the bi-monthly monetary policy statements, gave its ex-ante assessment of the impact of increase in the 7th CPC’s HRA. The unfolding of data thus far, endorses this assessment.

Separate indices

Since the sample of dwellings surveyed by the Central Statistical Organisation includes employer-provided accommodation, the study suggested that it could consider producing separate housing indices for government housing and for others.

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