Why inflation rate may not be the most 'accurate gauge' of the economy?
Economic Survey for September and said that inflation expectations in India are softening, indicating reduced inflationary concerns.
The report said that both household and business surveys by the Reserve Bank of India (RBI) and the Indian Institute of Management, Ahmedabad (IIM-A) suggest a stable demand environment, despite the impact of price fluctuations in key food items on headline inflation.
«The headline inflation rate, influenced as it is by a few food items, may not be the most accurate gauge of underlying demand,» the government said.
This is not the first time that the Department Economic Affairs, headed by CEA Nageswaran, has highlighted the need to eliminate food from India's inflation framework. Earlier in its survey report for 2023-24, it had said that India's monetary policy framework should consider targeting inflation that excludes food, the prices of which are influenced more by supply than demand.
However, as the debate fumes, experts like Raghuram Rajan, former Reserve Bank of India (RBI) Governor, have cautioned against excluding food prices from inflation calculations. «So, if you leave out some of the most important parts of inflation and tell them, inflation is under control, but food prices are going through the roof… they would not have great faith in the Reserve Bank,» Rajan had told earlier this month.
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