Premature to use CPI as anchor for inflation target: Mayaram

Tags: News
A day after a RBI panel proposed making retail inflation the focus of monetary policy, Economic Affairs Secretary Arvind Mayaram today said it is premature to use the consumer price index as anchor since the data has imperfections.

"CPI has lot of imperfections. It requires a whole lot of sophistication which we have not achieved yet on determining CPI... So it is, in my opinion, a little premature to consider CPI as the anchor of our inflation target," he told a TV channel here.

The panel, headed by Urjit Patel, recommended that the Reserve Bank should bring down Consumer Price based Index (CPI) or retail inflation to 8 per cent over the next 12 months, and to 6 per cent over the next 24 months.

"CPI has (a) very large element of food. We know food inflation cannot be curbed purely through monetary policy... So, there are other structural issues that need to be addressed, if we need to control food inflation," he said.

Mayaram further said that inflation targeting is done in countries which have more stable kind of pricing.

"In India, it may be difficult to do that kind of targeting... We don't have as yet achieved that level of stability in the prices where we can curb certain volatilities or volatility in certain periods through a very specific targeting," he said.

Mayaram, however, added that it is important to keep inflation under control and all steps should be taken to curb it.

Retail inflation fell to a three-month low of 9.87 per cent in December. The rate of price rise in food and vegetables segment stood at 12.16 per cent.

There is inelasticity of demand as far as food is concerned, Mayaram said, adding that even if inflation is higher it does not mean that people will start eating less just because interest rates are higher.

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