April 1, 2020
There has been a lot of discussion regarding India’s inflation targeting framework and the conduct of monetary policy over the last couple of years. The recent decision of the government to scrap the 2017 Consumption Expenditure Survey has implications for the same as the new consumer price index (CPI) weights will have to wait for the next round of the survey. This will result in a higher share of food in the new inflation series over the coming months. While on an average, it will not have a significant impact on the conduct of monetary policy, there could be times when the CPI figures may be higher due to seasonal factors that shore up food prices. Therefore, a serious review of the choice of inflation target is warranted as a part of the review of the Monetary Policy Framework initiated by the RBI.