Why in the News?
India’s CPI (Consumer Price Index) inflation rose to 4.45% in July, driven mainly by food and fuel prices, while remaining within the RBI’s tolerance band.
What is CPI?
- CPI = Consumer Price Index
- Measures changes in retail prices of a fixed basket of goods and services.
- India’s CPI was rebased to 2024.
- Sector-wise data under the new series is available from January 2026.
What Drove Inflation?
- Food inflation: 5.52%.
- Onion inflation: 22.54%.
- Restaurants & accommodation: 7.7%.
- Transport: 4.4%.
- Personal care: 14.8%.
What Remained Stable?
- Core inflation: 3.9%, excluding food and fuel.
- Health inflation: 1.3%.
- Recreation: 1.6%.
- Stable core inflation suggests limited demand-pull pressure, with the current rise largely driven by supply-side factors.
Inflation Targeting in India
- Flexible Inflation Targeting (FIT):
- Target: 4% CPI inflation
- Tolerance band: 2% to 6%
- Implemented by the RBI (Reserve Bank of India).
- Important RBI Act Provisions
- Section 45ZA: Inflation target.
- Section 45ZB: Six-member MPC (Monetary Policy Committee).
- Section 45ZN: Report to government if inflation target is missed for 3 consecutive quarters.
Key Challenges
- Food and weather-related supply shocks.
- Crude oil price volatility.
- Geopolitical disruptions.
- Trade-off between inflation control and growth.
- Monetary policy transmission lags.
“[2022] In India, which one of the following is responsible for maintaining price stability by controlling inflation?
(a) Department of Consumer Affairs
(b) Expenditure Management Commission
(c) Financial Stability and Development Council
(d) Reserve Bank of India