India’s inflation target may need to be fine-tuned: chief economic adviser

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Food prices have significantly affected headline CPI inflation over the past year

India’s inflation target range needs to be fine-tuned to reflect factors on the demand side and monetary policy is not expected to be affected by factors on the supply side, a senior government official said on Monday. The current monetary policy framework, signed by Prime Minister Narendra Modi’s government with the Reserve Bank of India in 2015, expires next month and is expected to be adjusted when approved for the next five-year term to provide greater flexibility to support the growing economy.

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Retail inflation in India, which had reached double digits under the previous government led by the Congress Party, has gradually declined, helping Prime Minister Modi to win a second term in 2019. He is needed to refine the monetary policy target as central bank tools mainly looked at demand factors, while the current inflation target was affected by food prices, mainly dependent on supply side measures, Krishnamurthy Subramanian, chief economic adviser at the finance ministry, said on Monday.

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“I don’t think it’s correct to rely on just one measurement,” he said. Mr Subramanian suggested that core inflation, which excludes food and fuel prices, might be a better indicator to target, adding that there is a need to update the 2011/12 base year. and review household consumption items for the collection of monthly consumer price data. reflect changing consumption patterns. He said the CPI inflation data should also capture online transactions.

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Food prices, which contribute nearly half of the consumer price index, have significantly affected headline CPI inflation over the past year, he told Reuters in a report. interview. Inflation in Asia’s third-largest economy returned to the Reserve Bank of India’s (RBI) inflation target range of 2-6% last month after remaining above the bank’s comfort range central for eight consecutive months.

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