It might be time for India to reconsider its indicator for inflation targeting
- The government could re-examine its 2016 legislative mandate and modify RBI’s inflation target to cover both WPI and CPI. An experimental producer price index can be the first step in moving to a regular index.
In my last article, I had discussed the different measures of inflation and closed by pointing out that the divergent behaviour of the Consumer Price Index (CPI) and Wholesale Price Index (WPI) creates a challenge for monetary authorities. In order to understand this issue, it is worth taking a step back to understand recent developments in monetary policy in India.