EconSurvey
India should consider targeting inflation excluding food
This story was originally published at 18:44 IST on 22 July 2024
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NEW DELHI – India should rethink its inflation targeting framework to consider focusing on inflation excluding food prices, the Economic Survey for 2023-24 (Apr-Mar) said.
"Higher food prices are, more often, not demand-induced but supply-induced. Short-run monetary policy tools are meant to counteract price pressures arising out of excess aggregate demand growth," the survey said.
"Deploying them to deal with inflation caused by supply constraints may be counterproductive. Therefore, it is worth exploring whether India's inflation targeting framework should target the inflation rate excluding food."
Food items make up close to 40% of the CPI in India and have been the main reason for volatility in the headline inflation print in recent times. Headline CPI inflation rose to a four-month high of 5.08% in June because of sharply higher vegetable prices, particularly of onion, tomato, and potato.
The Reserve Bank of India follows a flexible inflation targeting regime with 4% inflation as the aim, with a wider band of 2-6%. CPI inflation has now remained above the RBI's medium-term target of 4.0% for 57 consecutive months.
"When food prices rise, inflation targets come under threat," the survey said. "Therefore, the central bank appeals to the government to bring down the increase in the prices of food products. That prevents farmers from benefiting from the rise in terms of trade in their favour," it said. End
Reported by Shubham Rana
Edited by Rajeev Pai
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