Inflation Measures in India

The RBI in its mid-quarterly review, however, hinted at rate cuts in future. It had increased rates 13 times since March, 2010, to tame inflation. The central bank today kept its key policy rates unchanged. From this point on, monetary policy actions are likely to reverse the cycle, responding to the risks to growth.

Which inflation index do we target? We look at detailed price data, expenditure patterns of households and the composition of different price indices available in India. Though monetary policy in India is not explicitly charged with delivering low and stable inflation, it still needs to choose a measure of inflation as a reference. Questions of timeliness, weights in the price index, accuracy of food price measurement, and inclusion of the prices of services are relevant to the choice of measure.