RBI Governor Shaktikanta Das made an important statement regarding inflation. He said that it is not fair to say that inflation has decreased by excluding the prices of vegetables and food items from the Consumer Price Index (CPI). He emphasized that we need to consider the perspective of the common people who have to spend 50% of their income on food.
Half of the Income Spent on Food
In an interview with NDTV, Governor Das explained that food inflation is high, and core inflation may be low, but it’s not appropriate to claim that inflation has decreased. He pointed out that people might wonder how the government and RBI are saying inflation is down when they have to spend so much of their salary on food. Das mentioned that food items are a crucial component of the headline inflation target. In our consumption basket, food inflation accounts for 46%. People are spending nearly 50% of their income on food.
Waiting for a Cut in Policy Rates
Regarding the reduction in policy rates (interest rates), the RBI Governor said that any cut would depend on future data. He noted that inflation is coming down, and the RBI has set a target of 4.5% inflation for this year. Das mentioned that over the next six months, they will study the data closely. Their focus is on reducing inflation to around 4% and keeping it there for the long term. He emphasized the need for patience.
Changes in the Retail Inflation Rate
The government has formed a panel under the Ministry of Statistics to work on new retail inflation data. It is expected that the weightage of food items in the new retail inflation rate might be reduced to prevent a sharp rise in overall inflation due to spikes in food prices. Currently, the Consumer Price Index (CPI) basket gives about 50% weightage to the food and beverage category. The CPI is currently based on the fiscal year 2011-12. Recently, Chief Economic Advisor V. Anantha Nageswaran suggested that food items should not be included in the RBI’s inflation target.
