Food prices in focus amid inflation, interest rate call
Published On : 2024-11-20T09:52:36+0530 [ IST ] |
Author : Mayur_Tembhare
Reading Time : 2 mins
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The sharp spike in retail inflation in October to a 14-month high of 6.2% has triggered a fresh debate about the country's inflation targeting framework and whetherfood prices should be excluded while setting interest rates.
TOI looks at the issues related to the debate:
Why are food prices so important?
Food prices have led to seasonal spikes complicating the overall retail inflation situation. Economists sayfood inflationcannot be ignored as it has a high weight in the consumer price index basket and persistent high food inflation raises inflationary expectations.
Tell me the monetary policy framework?
The RBI RBIAct was amended in May 2016 for providing a statutory basis for rolling out the inflation targeting framework for five years. The Centre and RBI finalise the inflation target based on the consumer price index. It has set a 4% inflation target with the upper tolerance limit at 6% and the lower level at 2%.
How did the Economic Survey's views on re-examining the inflation targeting framework spark the debate?
The latest Economic Survey had suggested excluding food prices from the inflation targeting framework. It had argued that higher food prices are more often not demand-induced but supply-induced and short-run monetary policy tools are meant to counteract price pressures arising out of excess aggregate demand growth.
It said that hardship caused by higher food prices for poor and low-income consumers can be handled through direct benefit transfers or coupons for specified purchases valid for appropriate durations.
Why can't inflation be ignored?
Shaktikanta Das had said that the monetary policy committee's target is the headline inflation where food & beverage inflation has a weight of around 46%. He had asserted that with this high share of food in the consumption basket food inflation pressures cannot be ignored.
The governor said that high food inflation adversely affects household inflation expectations which have a significant impact on the future trajectory of inflation. RBI is of the view that stubborn high food inflation and unanchored inflation expectations - if they materialise - could lead to spillover
The MPC may look through high food inflation if it is transitory but in an environment of persistent high food inflation as we are experiencing now the MPC cannot afford to do so. It has to remain vigilant to prevent spillovers or second round effects from persistent food inflation and preserve the gains made so far in
Source : Reporters From Sunrise Chronicles
Tags : Das , targetfinance minister nirmala sitharaman , Deploying , Supply , pricesmonetary policy credibility ," das , October , Piyush Goyal , foodhigh food inflation adversely affects household inflation expectations , Nirmala Sitharaman , March ,
Summary :
The sharp spike in retail inflation in October to a 14-month high of 6.2% has triggered a fresh debate about the country's inflation targeting framework and whetherfood prices should be excluded wh
