Falling short – CPI trends and RBI’s Responsibilities | 13th October 2022 | UPSC Daily Editorial Analysis

October, 2022 UPSC
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What's the article is about?

  • It talks about current Retail inflation (CPI-AI) trends & RBI's responsibilities to contain it.

Relevance:

GS3: Indian Economy & related issues; Prelims: RBI, inflation.

Current retail inflation trends:

  • it rose to five month high of 7.41 % in Sept.
  • inflation stayed above the upper limit (6%) for three consecutive quarter.
  • Food inflation, captured as Consumer Food Inflation, was 8.6% in Sept.
  • Core inflation (excluding Food & fuel components) is also increasing

Retail inflation:

  • CPI-based Inflation When we talk about the rate of inflation, it often refers to the rate of inflation based on the consumer price index (CPI). The CPI tracks the change in retail prices of goods and services which households purchase for their daily consumption.
  • The CPI monitors retail prices at a certain level for a particular commodity; price movement of goods and services at rural, urban and all-India levels. The change in the price index over a period of time is referred to as CPI-based inflation, or retail inflation.
  • Generally, CPI is used as a macroeconomic indicator of inflation, as a tool by the central bank and government for inflation targeting and for inspecting price stability, and as deflator in the national accounts.
  • It is released by the National Statistical Office (NSO).

RBI's response:

  • Monetary Policy Committee (MPC) of RBI raised the repo rate by 190 basis points so far.
  • RBI have dual role keep inflation in control & to boost economic growth. Raising repo rate negatively impacts the growth related task of RBI.

RBI's responsibilities:

  • As per RBI Act, 1934 & Monetary Policy Framework of 2015, RBI needs to keep retail inflation between 2% and 6%.
  • If RBI fails to meet this inflation target for three consecutive quarters, it will have to report in written to central government reasons for failure & necessary steps needed to be taken.
  • Recently RBI has given such report to the central government.

Way forward:

  • To ensure greater accountability & transparency in functioning of MPC, Government should place this report of RBI in the public domain.



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