The Reserve Bank of India on 1 April 2014 adopted the Consumer Price Index (CPI) as the key measure of Inflation. It was adopted in the first bi-monthly monetary policy statement for 2014-15.
It was adopted on the basis of recommendations of Urjit R Patel Committee report on Revising and Strengthening the Monetary Policy Framework.
Till now the Reserve Bank of India (RBI) was using Wholesale Price Index (WPI) to gauge and measure indicative inflation projections. This was done essentially because it is the only measure of prices at a national level and CPIs have traditionally addressed prices facing specific sections of the society.
Adoption of CPI as a measure of inflation is intended to better gauge inflation expectations because CPI reflects cost of living. This will make clear that inflation is the RBI's primary objective and that it expects to be held accountable for its performance in this regard. Besides, it will also help RBI in better anchoring the monetary policy.
The Urjit Patel Committee was of the view that the nominal anchor or the target for inflation based on CPI should be set at 4% with a band of +/- 2% around it. But before setting 4% as inflation anchor, RBI should try and bring down inflation to 8% over a period not exceeding the next 12 months, and to 6% over a period not exceeding the next 24 months.
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