The Economic Survey (ES) of 2023-24, released recently, has suggested exploring whether India’s inflation targeting framework should focus on the inflation rate excluding food, as farmers are prevented from benefitting from rising prices. It argues that short-term monetary tools to address inflation caused by supply constraints may be counterproductive. This suggestion raises some crucial issues.
First, it is true that monetary policy is a tool for demand management and it has no influence on an increase in food inflation. However, monetary policy has a critical role in reining in the “second-round effects” of high and persistent food inflation.
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First Published: Aug 06 2024 | 10:21 PM IST
