Most western countries exclude food and fuel inflation when viewing inflation data. It means, they do not calibrate their monetary policies looking at the above two.
India on the other hand includes these in the reported inflation. Its because we think its important to include these. ITs probably because with limited spending power the percentage of income Indians spend on these is significant.
I feel these two are supply side issues. Fuel inflation is imported. The fuel prices are volatile as its exposed to vagaries of exchange rate and oil price fluctuations in the international mkt. Food is largely supply dependent. There is little the RBI policy could do to alter the prices(demand / supply) of these by changing the interest rates. Especially the food prices can be raised by cartels by creating artificial shortfall.
Then why are we continuing to increase the interest rates to rein in inflation? Whats the core inflation in India? I do not understand this. In the process we are killing whatever growth that can be achieved by relentlessly increasing the interest rates.
RBI knows this. Raghuram Rajan certainly knows this. Then why?
India on the other hand includes these in the reported inflation. Its because we think its important to include these. ITs probably because with limited spending power the percentage of income Indians spend on these is significant.
I feel these two are supply side issues. Fuel inflation is imported. The fuel prices are volatile as its exposed to vagaries of exchange rate and oil price fluctuations in the international mkt. Food is largely supply dependent. There is little the RBI policy could do to alter the prices(demand / supply) of these by changing the interest rates. Especially the food prices can be raised by cartels by creating artificial shortfall.
Then why are we continuing to increase the interest rates to rein in inflation? Whats the core inflation in India? I do not understand this. In the process we are killing whatever growth that can be achieved by relentlessly increasing the interest rates.
RBI knows this. Raghuram Rajan certainly knows this. Then why?
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