Excluding food prices from inflation will erode faith in RBI: Raghuram

Amid suggestions for excluding food inflation while setting benchmark interest rates, former RBI Governor Raghuram Rajan has said he was against excluding food prices from headline inflation, as it would erode the ‘great faith’ of people in the Central Bank, which had been mandated by the government to keep inflation in check.

Rajan was responding to a question on suggestions made in the Economic Survey 2023-24 for excluding food inflation while setting benchmark interest rates.

“So, if you leave out some of the most important parts of inflation and tell them, inflation is under control, but food prices are going to the roof or something else is going up, which is not included in the inflation basket, then you know, they would not have great faith in the Reserve Bank,” he said.

Chief Economic Advisor V Anantha Nageswaran in the Economic Survey 2023-24 had pitched for excluding food inflation from the rate setting calls, saying that the monetary policy has no bearing on the prices of food items, which are dictated by supply side pressures.

According to Rajan, the RBI can target the aggregate price level. The weightage of food in the overall consumer price inflation, which stands at 46 per cent currently, was done in 2011-12, and needs to be revisited.