Classification is the first step in compiling the CPI because its sub-aggregates must be defined in such a way that expenditure weights and prices will relate precisely to the coverage of the sub-aggregates. It establishes a hierarchical framework from whose boundaries the representative items for inclusion in the index (and sometimes the outlets) will be defined and drawn. In broad sense, a classification is a procedure in which items are organized into categories based on information on one or more characteristics inherent to the items. In years past, countries used their own distinct systems for classifying the range of products covered by their CPI. Most countries have now, however, moved to the international standard classification COICOP (Classification of Individual Consumption according to Purpose).
In order to ensure better comparability with CPIs of other countries, it is desirable to have the classification of items synchronized with COICOP. At the same time, it is also important to make it relevant to the Indian context by making it comparable to groups and sub-groups being followed in the CPI series compiled in the country. Accordingly, all consumption items have been classified under various Groups, Categories, Sub-groups and Sections.
(Source: Ministry of Statistics and Programme Implementation)
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