Anchoring expectations

Food prices are disrupting the disinflation process

Episodes of food- and fuel-price volatility are not unusual in India. Sustained food-price pressure continues to drive the headline inflation rate, making it important to understand how such price shocks can get in the way of managing inflation outcomes. While inflation outcomes have become relatively favourable, the Monetary Policy Committee (MPC) of the Reserve Bank of India (RBI) expects the inflation rate to average 4.5 per cent this financial year, but that will still be above the 4 per cent target. Even though the core inflation rate has softened to below 4 per cent in response to monetary tightening and