Excluding food inflation not a good proposition: Rajan

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

Rajan further said it is best that inflation target a basket which is what the consumer consumes because that affects the consumers perception of inflation and ultimately inflationary expectations.

“When I came into office, we were still targeting PPI (producer price index). Now that has no bearing to what the average consumer faces. So, when the RBI says inflation is low, look at PPI, but if the consumer is facing something very different, then they do not really believe that inflation is down,” he told PTI. 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 AnanthaNageswaran 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.