(Bloomberg) -- India’s central bank Governor Shaktikanta Das rejected the proposal of a top government adviser to strip volatile food prices from inflation targets, saying such a move would make no sense to normal consumers.
Eliminating food, which accounts for nearly half the Asian nation’s consumer inflation basket, would amount to “not having a target,” the Reserve Bank of India chief said at a Peterson Institute for International Economics forum in Washington on Friday.
“Targeting core inflation without food inflation will make no sense to the average citizen,” he added. “It’s the headline inflation that the common person understands and should remain that way.”
Inflation spiked in September on the back of food prices, with vegetable costs alone surging 36%. That caused economists to dial down expectations for a rate cut, despite the US Federal Reserve’s recent reduction spurring a global easing wave.
The RBI governor last week said a cut would be “very, very risky” right now, and reiterated Friday that he wanted to see price growth on a “durable descent” to the 4% target.
The prescription for inflation-minus-food was floated in July by India’s chief economic adviser V Anantha Nageswaran, who argued that since interest rates can’t control the prices of food, deploying short-term monetary policy tools “to deal with inflation caused by supply constraints may be counterproductive.”
That proposal has divided economists. Jayanth Rama Varma, a former member of the RBI’s rate panel, said there was no evidence that higher food costs are pushing up prices more broadly in the economy. Nomura Holdings Inc.’s Sonal Varma dismissed the suggestion as infeasible in a country where food makes up 46% of the consumer inflation basket.
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