Why food inflation cannot be excluded from target inflation

livemint.com:

inflation minus the food and beverages category—was both lower and less volatile than overall headline inflation. By April 2023, non-food inflation had fallen within the Reserve Bank of India's upper tolerance band of 6%, and by September 2023, it was slightly below the 4% target. Headline inflation, on the other hand, has remained around 5% since early 2024.

But food inflation, inconvenient as it is, cannot be wished away. Food and beverages make up 45.9% of the consumer price index (CPI) basket (39.1% if we look at the CFPI). More importantly, food items punch way above their weight: food inflation was the highest contributor to total inflation over much of the post-pandemic period, and its contribution has consistently been above 50% over the past one year.

With climate change intensifying the frequency of adverse weather events, crop yields are increasingly threatened, making food prices more volatile and food inflation more significant. Also Read: In charts: Volatile vegetables are making inflation bitter Households usually build inflation expectations on the basis of recent price trends of daily-use items. Top-of-the-mind recall products include food and fuel, that’s why food inflation is a key driver of inflation expectations.

When food prices are persistently high, as they have been since July 2023, inflation expectations stay high, even if fuel prices decline. Also Read: Why we need less food in our inflation basket The Reserve Bank of India’s (RBI) survey of inflation expectations shows that households perceive current inflation to be closer to food inflation than headline inflation. Thus an inflation measure that excludes food prices risks being lower than households’ perceived inflation.