Core Inflation

Today's opinion pieces offer a sharp mix of macro and culture: China's demand shortfall, Prada's Kolhapuri move, the rupee's policy trilemma, why RBI needs better data, and a candid chess memoir.

Economists at the BS BFSI Summit said India's inflation-targeting framework has anchored expectations and strengthened RBI's credibility, but needs more flexibility and stronger policy coordination

The RBI left rates unchanged at 5.50%, as expected, on Wednesday and said the inflation outlook was 'more benign'

In previous trading session, the Sensex plunged 1,048.90 points, or 1.36 per cent, to close at 76,330.01. Similarly, the Nifty50 dropped 345.55 points, or 1.47 per cent, ending the day at 23,085.95

In July, Chief Economic Advisor V Anantha Nageswaran pitched for excluding food inflation from policy formulation which set it a fierce debate in policy circles with RBI resisting any such move

Increase in the nationwide core consumer price index (CPI), which includes oil products but excludes fresh food prices, compared with a median market forecast for a 2.2 per cent gain

With food inflation contributing over 75 per cent to headline inflation in May and June and making up 46 per cent of the CPI basket, vegetable prices accounted for 35 per cent of June's inflation

U.S. yields eased last week after December producer prices data fell unexpectedly, raising bets of an early interest rate cut by the Federal Reserve

Momentum may not sustain into next year; policymakers should stay vigilant and build buffers

Supply-side issues will complicate policy choices

Vegetable prices eased in August and brought down retail inflation to 6.8%. This is likely to continue in September, the Reserve Bank of India said in its monthly bulletin

The economy expanded at a 2.6% rate in the fourth quarter

Household goods and services, personal care products still hovering at high levels

Some economists believe that firms are using the excuse of supply disruptions, earlier due to Covid-19 and now the Russia-Ukraine war, to increase prices, calling it 'excuseflation'

A call to dismantle them when the world hasn't done so is economic hara-kiri

"High core inflation also points to the cost-price nexus in the economy more sharply," Bhide said, adding that stabilizing core prices was necessary for manufacturing firms to expand their capacities

Globally, too, sticky inflation seems to be a cause for concern. Last week, two Federal Reserve (US Fed) officials suggested that the US central bank may need to keep interest rates elevated ahead

Core inflation, that excludes food and fuel prices, remained sticky above the 6% mark

Core inflation, which excludes volatile food and fuel prices, was still running at 6.10% in December, which makes it difficult for the RBI to look away and to keep the tightening cycle going

RBI monetary policy: In December, Das had said that despite consecutive rate hikes, core inflation had continued to remain 'sticky'