Raghuram Rajan, the RBI Governor has indicated that the RBI could soon change its focus from Wholesale Inflation to Consumer Inflation and unveil monetary policies addressing the consumer inflation. Historically, RBI has relied on WPI (Wholesale Price Index) which is based on the prices of traded goods and services and thus has a bias towards businesses.
Ever since Raghuram Rajan has taken over as the RBI chief, the RBI has maintained that its focus is addressing the inflation concerns. The RBI maintains that growth and financial stability, the other important functions of the RBI are incidental to inflation. However, having raised rates twice since September, the RBI is yet to address the problem of inflation, while growth remains languishing at sub 5 % levels. This has led to many calling the current environment as stagflationary.
The shift in focus from WPI to CPI comes at a time when the CPI inflation is at a high of 11.29 %, mainly led by food inflation, which is at a record high of 20%. Consumer prices are typically the key inflation gauge in most developed economies, but in India the focus has long been on wholesale prices because of the unreliable retail data.
The RBI report which is believed to frame policies with a focus on CPI is is being compiled by a panel headed by Urjit Pael, its deputy governor for monetary policy, and is scheduled to come out by the end of this month. Rajan will decide on the review's final shape.
It remains to be seen whether a consumer inflation focussed monetary policy will help control the ever increasing inflation, especially the food inflation, which impacts every household in the nation.
- Sufiyan Sarguroh
SIMSREE Finance Forum
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