NEW DELHI: Contrary to the views expressed in the Economic Survey regarding the exclusion of food from retail inflation calculations, RBI Governor Shaktikanta Das on Thursday emphasised that food inflation cannot be overlooked due to its significant contribution to the overall consumption basket.
According to Das, at the forefront of RBI’s focus is headline inflation, with food inflation accounting for approximately 46% of the consumer price index (CPI). “...Further, the public at large understands inflation more in terms of food inflation than the other components of headline inflation. Therefore, we cannot and should not become complacent merely because core inflation has fallen considerably,” he said.
Das clarified that while the Monetary Policy Committee (MPC) might overlook elevated food inflation if it is deemed temporary, the current situation of sustained high food inflation requires the committee to take it seriously. He said that the MPC must stay alert to prevent spillover effects or second-round impacts from ongoing food inflation to maintain the credibility achieved through the monetary policy efforts.
The Economic Survey, released prior to the Budget, advocated for a revision of the central bank’s inflation targeting framework by excluding food inflation. It argued that India’s inflation targeting should focus on overall inflation minus food prices, as fluctuations in food prices are frequently driven by supply factors rather than demand. The Survey suggested that it may be beneficial to reconsider whether India’s inflation targeting framework should exclude food inflation.
Regarding the weight of food in the CPI, Das said the existing CPI basket and the weight assigned to core, fuel, and food were based on data from 2011.
NSO survey is underway
Shaktikanta Das noted that the NSO survey is currently underway, and a decision will be made in due course based on the data collected, in collaboration with the government and the RBI.