India should retain headline inflation as target, external rate panel members say: Report
In the MPC minutes released on August 22, the central bank noted that the headline inflation has seen upward movement in June to 5.1 percent, as food inflation pressures increased and offset the impact of subdued core (CPI excluding food and fuel) inflation and deflation in the fuel group.
- Aug 25, 2024,
- Updated Aug 25, 2024 4:30 PM IST
Headline inflation impacts Indians directly and should be retained as the target for monetary policy rather than switching to core inflation, external members of the central bank’s rate panel told Reuters.
Shashanka Bhide, an external member of the Reserve Bank of India’s MPC, said it is necessary to look at the whole consumption basket to gauge the actual price pressures in the economy.
“If we use a partial basket for a target then it would not reflect the overall price pressures and if the target is the core alone, then it should in some way capture the trend of food inflation or fuel inflation if not the volatility,” Bhide said in an interview with Reuters.
The RBI observed that the policy must continue to be actively disinflationary to ensure anchoring of inflation to its target level. In the MPC minutes released on August 22, the central bank noted that the headline inflation has seen upward movement in June to 5.1 percent, as food inflation pressures increased and offset the impact of subdued core (CPI excluding food and fuel) inflation and deflation in the fuel group.
Jayanth Varma, a second external MPC member, who voted for a 25-basis point rate cut for four straight meetings told Reuters that one of the key questions for the MPC is whether high food inflation would spill over into core inflation.
Ashima Goyal, the third external member, who has also voted for a cut for two meetings now said research has shown the headline inflation rate moves towards core inflation in India over the longer term, the Reuters report added.
“Headline is the inflation that impacts the public more. But I think the MPC should pay more attention to core inflation,” she said.
Although food inflation is still high, the RBI's rate-setting panel observed that price stability and resilient growth have created space for the monetary policy to focus unambiguously on inflation.
On future indicators, the RBI noted that headline inflation in July and Q2 of the current financial year are expected to be lower, given their base effect advantage; but with food inflation pressures showing little signs of abatement in the near-term, and household inflation expectations picking up, monetary policy has to remain vigilant to potential spillovers of food price pressures to the core components.
“Inflation is gradually trending down, but the pace is slow and uneven. Durable alignment of inflation to the target of 4.0 percent is still some distance away. Persistent food inflation is imparting stickiness to headline inflation,” said RBI Governor Shaktikanta Das.
Earlier this month, the RBI MPC decided to keep the policy repo rate unchanged at 6.50 percent for the ninth consecutive time.
Headline inflation impacts Indians directly and should be retained as the target for monetary policy rather than switching to core inflation, external members of the central bank’s rate panel told Reuters.
Shashanka Bhide, an external member of the Reserve Bank of India’s MPC, said it is necessary to look at the whole consumption basket to gauge the actual price pressures in the economy.
“If we use a partial basket for a target then it would not reflect the overall price pressures and if the target is the core alone, then it should in some way capture the trend of food inflation or fuel inflation if not the volatility,” Bhide said in an interview with Reuters.
The RBI observed that the policy must continue to be actively disinflationary to ensure anchoring of inflation to its target level. In the MPC minutes released on August 22, the central bank noted that the headline inflation has seen upward movement in June to 5.1 percent, as food inflation pressures increased and offset the impact of subdued core (CPI excluding food and fuel) inflation and deflation in the fuel group.
Jayanth Varma, a second external MPC member, who voted for a 25-basis point rate cut for four straight meetings told Reuters that one of the key questions for the MPC is whether high food inflation would spill over into core inflation.
Ashima Goyal, the third external member, who has also voted for a cut for two meetings now said research has shown the headline inflation rate moves towards core inflation in India over the longer term, the Reuters report added.
“Headline is the inflation that impacts the public more. But I think the MPC should pay more attention to core inflation,” she said.
Although food inflation is still high, the RBI's rate-setting panel observed that price stability and resilient growth have created space for the monetary policy to focus unambiguously on inflation.
On future indicators, the RBI noted that headline inflation in July and Q2 of the current financial year are expected to be lower, given their base effect advantage; but with food inflation pressures showing little signs of abatement in the near-term, and household inflation expectations picking up, monetary policy has to remain vigilant to potential spillovers of food price pressures to the core components.
“Inflation is gradually trending down, but the pace is slow and uneven. Durable alignment of inflation to the target of 4.0 percent is still some distance away. Persistent food inflation is imparting stickiness to headline inflation,” said RBI Governor Shaktikanta Das.
Earlier this month, the RBI MPC decided to keep the policy repo rate unchanged at 6.50 percent for the ninth consecutive time.