Fighting food inflation isn’t a challenge for a single fighter

livemint.com:

Recently released Consumer Price Index-Combined (CPI-C) data shows that food inflation, driven by pulses, vegetables and cereals, is outpacing general CPI inflation. While the latter is 3.54%, food inflation is significantly higher at 5.06%. The relationship between retail and food inflation has been a matter of considerable debate, especially in light of the 2024 Economic Survey’s suggestion that food inflation should no longer be included in the inflation target, since it is largely supply driven.

In the latest Reserve Bank of India (RBI) Bulletin released on 19 August, RBI authors Patra, John and George have countered this argument. They demonstrate that food inflation significantly and positively influences inflationary expectations. India’s monetary policy is guided by a flexible inflation-targeting framework, under which RBI seeks to keep inflation at 4% with a permissible deviation of plus or minus 2%.

Based on monthly data from the ministry of statistics and programme implementation, we undertook an analysis of the relationship between the CPI-C and food inflation for the decade April 2014 to July 2024. We found that CPI inflation exceeded 6% in 34 of the 124 months studied (27% of the time), while in two months it was less than 2%. On the other hand, in 52 of the 124 months (42% of the time), food inflation was above 6%.

Notably, in 20 months, food inflation was below 2%, of which seven months recorded negative inflation, while 13 months recorded positive but under 2% inflation. These figures underscore the disproportionate impact of food prices and their volatility on overall inflation, reinforcing the argument that food prices remain a critical factor in shaping monetary policy outcomes. A more granular