Tomatoes, Onions, Gold Driving CPI Inflation Says CEA

Mumbai: Chief Economic Adviser (CEA) V Anantha Nageswaran on Tuesday said that the recent rise in Consumer Price Index (CPI)-based inflation is primarily driven by a select few commodities. Nageswaran explained that excluding tomatoes, onions, potatoes (TOP), and gold and silver from the CPI calculation reveals a much lower headline inflation rate of just 4.2 per cent for October. While these items together make up only 3.4 per cent of the total CPI basket, they contribute more than one-third of the 6.2 per cent inflation rate recorded for the month.

Speaking at the State Bank of India’s (SBI) Annual Business and Economic conclave, Nageswaran said, “We know that CPI is being very much influenced by a few commodities. If you take out tomatoes, onions, potatoes, gold, and silver, the headline CPI rate is 4.2 per cent… the items that constitute a 3.4 per cent weight together account for more than one-third of the 6.2 per cent inflation rate we have seen for October.”

The CEA in the Economic Survey had proposed that India’s inflation-targeting framework should exclude food inflation, given its unique drivers. He argued that the monetary policy is primarily a short-term tool for managing aggregate demand and is not well-suited to address supply-side shocks. Since food inflation is largely driven by such supply shocks, it should be considered separately.

However, Reserve Bank of India (RBI) Governor Shaktikanta Das is of the opinion that due to the significant share of food in the consumption basket, the Monetary Policy Committee (MPC) cannot overlook food inflation.

Speaking about Donald Trump’s comeback as president of United States, Nageswaran said that it may be a "positive" for India as it would help contain energy prices, critical to spur economic growth. “If India were to grow at a higher pace in the next 25-odd years, energy prices would have to be affordable to sustain the country's growth rate of 6.5 per cent to 7 per cent.