Food inflation has become a central issue in India's economic discourse, raising critical questions about its impact on monetary policy and RBI’s role in managing it
The latest Economic Survey suggested excluding food prices from the inflation-targeting framework, arguing food inflation is often driven by supply-side factors
RBI Governor Shaktikanta Das reaffirmed the RBI's commitment to the 4% inflation target, stressing with food items constituting 46% of CPI, these cannot be ignored
Between June 2020 and June 2024, average food inflation was 6.3%, driven by climate events and monsoon distribution
Food inflation exceeded 6% in 57% of the months during this period
High food inflation has a significant positive impact on inflation expectations, complicating overall inflation management
It also pressures input costs and output prices in manufacturing and services
While some expect food inflation to ease, the RBI remains cautious, projecting 4.5% headline inflation for FY24
Given recent trends, it is prudent for the RBI to maintain a vigilant stance on food prices