Why RBI cannot ignore food price pressures in overall inflation management

High food inflation can lead to the unanchoring of inflation expectations, which could significantly complicate overall inflation management

An interesting and lively debate is currently underway in the country on persistently high food inflation and its implications for monetary policy. Although the issue is not entirely new and has been a subject of debate at least since the adoption of the flexible inflation-targeting regime, it was, in a way, reignited by comments in the latest Economic Survey. The Economic Survey noted that India’s inflation-targeting framework should consider targeting inflation without food prices. The underlying reasoning of economists at the Ministry of Finance is that higher food prices are often driven by supply-side issues, not demand-induced.