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Resource centre on India's rural distress
 
 

The cost of food

-The Indian Express

Return of food inflation may not allow RBI to further slash interest rates but opens up room for delayed reform

Retail food inflation crossing 10 per cent, the first time in nearly six years, isn’t good news for an economy already mired in a deep slowdown. The suddenness of the increase (from under 3 per cent in August to 10 per cent-plus in November) and the fact that the Narendra Modi government’s tenure has been marked by low consumer food prices (an average rise of hardly 3.3 per cent year-on-year during its first term from June 2014 to May 2019) makes it all the more unsettling. That “core” consumer inflation — which excludes price increases in the more “volatile” food and energy components — is still only 3.5 per cent cannot be any consolation. Food prices strongly shape the inflation expectations of Indian households and, in turn, their spending behaviour. Given that the monetary policy’s overarching concern is price stability, the Reserve Bank of India (RBI), for one, has to pay as much attention to inflation expectations as actual inflation. Food inflation, in other words, cannot be dismissed as “non-core”.

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