RBI’s inflation projection misses not out of line with EM central banks: Viral Acharya

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Mumbai | Published: February 8, 2019 5:49:56 AM

Of late, headline inflation readings have been undershooting RBI’s projections amid volatility within the food and fuel components that are excluded from core inflation, which has invited criticism from market participants.

RBI, RBI inflation, EM central banks, Viral Acharya, demonetisation, Central Statistics OfficeThe central bank has also begun discussions with various agri-economists to get a better sense of where food inflation is headed, Acharya said.

The Reserve Bank of India is trying to improve on its real-time data collection efforts on food items in order to sharpen its inflation projections, deputy governor Viral Acharya said in a post-policy conference on Thursday. Of late, headline inflation readings have been undershooting RBI’s projections amid volatility within the food and fuel components that are excluded from core inflation, which has invited criticism from market participants.

Explaining the recent misses in inflation projections, he said, “If you look internationally at inflation projection errors of various central banks, you observe two distinct patterns. One is that food is always the volatile component in all economies and in economies where food is a bigger proportion of the basket, these are the central banks that tend to make larger errors. We’ve done some study which shows that once you control for the fact that Indian food basket is very volatile, in inflation and that it has a large proportion in our headline, the relative errors that the central bank here makes are not that out of line with what happens elsewhere in the world.”

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Acharya said, “What we have done over the last year is now get specific groups of our modelling team that focus on individual food items. They try and get a sense through our regional offices of what are the mandi arrivals etc in various items. We try to get an early sense on what the Central Statistics Office number might look like.”

The central bank has also begun discussions with various agri-economists to get a better sense of where food inflation is headed, Acharya said. Acharya indicated demonetisation in the past and a supply glut domestically as well as internationally for the continued surprise on the downside with respect to food inflation with continuing deflation across several items and a significant moderation in inflation in cereals.

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