Should the RBI focus on core inflation while forming its monetary policy? | In Focus podcast
The Reserve Bank of India\u2019s Monetary Policy Committee announced on Thursday (August 8) to keep the repo rate unchanged at 6.5% in its August 2024 meeting for the ninth consecutive time. It maintained its inflation projection for FY25 at 4.5 per cent.\nWhile announcing the MPC policy, Governor\xa0Shaktikanta Das\xa0noted that headline inflation reached 5.1 per cent in June 2024, driven by unexpected factors. Fuel prices remained in deflation for the tenth consecutive month, but food inflation surged. Food inflation contributed over 75 per cent to headline inflation in May and June. Vegetable prices alone accounted for roughly 35 per cent of June's inflation.\nGovernor Das said that that the MPC cannot afford to ignore this, espicially in an environment of persisting high food inflation.\nVegetables and pulses have kept headline retail inflation has been over 5 per cent for eight months in the last one year. However, retail core inflation \u2014 the non-food and non-fuel segment \u2014 moderated to a four-year low of 4.3 per cent in FY24. In fact, core inflation saw a historic low during May and June.\nSome experts believe that high food inflation is stopping the RBI from cutting rates. In\xa0fact, the Economic Survey has suggested that "India\u2019s inflation targeting framework should consider targeting inflation, excluding food."\nThe argument for the change is that core inflation is muted, meaning the domestic demand is weak. Core inflation measure the change in the cost of goods and services, but it does not include the food and energy sectors. A rate cut would help boost demand. Others say that food inflation is a very important component and it can't be excluded.\nIn this podcast, V Nivedita spoke to Dipti Deshpande, Director and Principal Economist at CRISIL Limited, to decode the debate - should the RBI focus on core inflation while forming its monetary policy?\n\nGuest: Dipti Deshpande, Director and Principal Economist at CRISIL Limited\nHost: V. Nivedita\nEdited by Jude Weston