What should monetary policy do?

The recent inflation data is not a serious problem for the Monetary Policy Committee

From the viewpoint of the accountability of the Reserve Bank of India (RBI) to Parliament and the public, it makes sense to focus on year-on-year changes of the consumer price index (CPI). This is comprehensible for a non-technical audience. This “headline inflation” has accelerated from the bottom of 1.97 per cent in January 2019 to 4.62 per cent in October 2019 (see Figure 1). In October 2019, this went above the inflation target of 4 per cent, though it must be noted that the RBI is required to hold headline inflation in the range 2-6 per cent.

Some people are concerned