BackThe core issue
Core inflation, as the Reserve Bank of India has been saying, remains dangerously hot
PremiumIndia’s wholesale price inflation eased for the eighth month in a row to a two-year low of 4.73% in January, year-on-year, according to government data. This is unlikely to offer much relief to policymakers since the rate of consumer price inflation, the benchmark gauge they track, leapt above the 6% upper limit of our legal target band last month. At 6.5%, it surprised those who mistook two months of within-range readings as a trend.
Core inflation, as the Reserve Bank of India has been saying, remains dangerously hot. Patterns suggest secondary price effects have been in play, with adrift expectations not yet done threatening upcycles. The central bank’s battle against bulging prices would have to go on till it is convinced that the menace is behind us.
Having failed last year to keep our cost of living in check, it cannot fail again without a heavy loss of credibility, which might force us to give up on flexible inflation targeting altogether. That would risk the defeat of a bold macro-policy reform. While markets have been anticipating another quarter-percentage-point hike in the repo rate before a plateau, core inflation may need to cool before any such peak can be sighted.
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