Ask any economist about what needs to be done as far as food price inflation is concerned, and s/he will drown you with jargon on “core” and “non-core” inflation. According to them, “core” inflation is something that can be tackled with monetary policy, while “non-core” inflation is that which is caused by other factors. So, if oil prices rise due to turbulence in central Asia, this is “non-core” since there is little Indian policy-makers can do to change this. Similarly, when food prices rise due to a bad monsoon, this is also “non-core”. Indeed, economists argue that most developed countries like the US only focus on “core” inflation and never take into account what’s happening on “non-core” inflation.
The problem in this type of explanation has been brought out very well by your editorial “Battling price rise” (December 18) by pointing out that when something goes on for as many months as the current food spiral has, it is no longer transient and is, therefore, quite “core”. As you have argued, after food inflation has remained so high for so many months, it is very likely it will creep into wage inflation and, through that, into the overall price index.
It is, however, not immediately clear as to whether the government should increase interest rates to tackle the problem. Raising interest rates will, through reduced demand, eventually tackle the problem but it could hurt the economy’s nascent growth momentum. For now, the government would do well to increase supplies of subsidised wheat and rice and perhaps offload some part of its large buffer stocks on to the market to lower prices.
Satish Jain, New Delhi