CPI to remain main tool for policy decisions- Reserve Bank Of India
In a recently published working paper by RBI, said that, consumer price index (CPI) should continue as the main tool or determinant in order to take decisions related to interest rate and monetary policy. The CPI contains food items. As food is very volatile in nature so volatile items does not represent the actual inflation or monetary situation. However For the last five months because of high food prices RBI could not ease the monetary policy rates despite a falling GDP. There is a debate if the CPI should be retained as main tool for policy decisions because half of the CPI weitage is more or less with food. If RBI take CPI without food and fuel, it may lead to under prediction of inflation. The CPI represents true consumption pattern of country because in India inflation is measured on cost of living not the standard of living so CPI should not be modified. Around the world, only in India, central bank deals with an index to measure inflation in which 45.6% weitage is given to the food components. In other countries of the world, in CPI, only 10% or less has weight of food items.