Should Food Prices Be Excluded from India's Inflation-Targeting Framework?
The Economic Survey ( 2023-24) suggested that India’s inflation-targeting framework should exclude food, as higher food prices are mostly often supply-induced rather than demand-induced. This rise in food prices threatens the inflation targets prompting the Central Bank to appeal to the government to use Short-run monetary policy tools to curb the increasing food prices This approach prevents farmers from benefiting from the rise in prices. The survey further suggested introducing Direct Benefit Transfers(DBT) or coupons for specified purchases, valid for appropriate durations, to mitigate the hardships caused by higher food prices for poor and low-income consumers. According to Chief Economic Advisor V Anantha Nageswaran, it is unfair to burden the Reserve Bank of India (RBI) to control inflation when a significant component, like food prices, is not under control.
While citing the spillover effect of high food inflation, Michael Patra (RBI Deputy Governor) said that it affects households' inflation expectations and impacts consumer confidence. He added that even though food price shocks originate outside the realm of monetary policy, they can propagate through second-order effects and become generalized.
Gaura Sengupta (economist at IDFC First Bank) also suggested that it is not the time to abandon the headline inflation-targeting framework because food is a large part of the consumption expenditure b
asket and food's high volatility and supply side shocks can spread into non-food components.
Radhika Rao (Executive Director and Senior Economist, DBS Bank) said that there is no merit in excluding food from any inflation-targeting framework, as a sustained rise in food inflation tends to influence inflationary expectations.
Economic survey (2023-24)'s suggestion to exclude food prices from India's Inflation-targeting framework revived a decade-old debate, with economists on both sides presenting their arguments. However, the Monetary Policy Committee’s latest meeting stopped all speculation about excluding food from RBI’s inflation-targeting exercise and emphasized the need to retain food prices within the central bank’s broader inflation target.
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MBA Finance '26 ? Meditation Trainer@Heartfulness ? Alumn-NIT Kurukshetra
6 个月Another perspective: https://www.ncaer.org/news/inflation-targeting-defending-the-status-quo
MBA Finance '26 ? Meditation Trainer@Heartfulness ? Alumn-NIT Kurukshetra
6 个月https://www.hindustantimes.com/business/new-base-year-for-retail-inflation-likely-101724736114420.html A Union government-appointed panel formed to update the Consumer Price Index (CPI), which tracks changes in retail prices, is likely to revise the base year used to measure inflation from 2012 to 2024 and lower the weight assigned to food items to keep pace with changing consumption patterns.
MBA Finance '26 ? Meditation Trainer@Heartfulness ? Alumn-NIT Kurukshetra
6 个月1. Inflation-Targeting Framework: The central bank is mandated to keep retail inflation at 4 per cent with a tolerance band of 2 percentage points on either side 2.Core inflation is headline or aggregate inflation stripped off food and fuel. 3. Headline Inflation: Inflation that captures overall prices including food and fuel prices.