The breach of the upper tolerance band in October 2026 shows inflation moving from food to services. Examine how effective the Flexible Inflation Targeting framework is in a supply-shock-prone economy.

Headline CPI inflation reached 6.1% in October 2026. This crossed the 6% upper limit of the 4% ±2% band for the first time in two years [1]. Restaurants & accommodation (10.1%) and transport (5.8%) also hit series highs [1]. So this is no longer only a food shock, and it is a real test of whether FIT is built for an economy prone to supply shocks.

Where FIT has worked

• Statutory anchor: under Sec 45ZA of the RBI Act, the Centre fixes the target in consultation with the RBI every five years. A six-member MPC under Sec 45ZB sets rates [3]. This makes policy rules-based and accountable.
• Built-in flexibility: the ±2% band lets the MPC look through short-lived food spikes.
• Credibility endorsed: the RBI's 2025 review drew strong support for headline CPI. The Centre kept 4% ±2% for 2026–31 [4][5].

Limits in a supply-shock-prone economy

• Rates cannot grow crops: food inflation at 8.5% [1] comes from weather and harvest shocks. A repo hike cuts credit and jobs but does not lower vegetable prices.
• Second-round effects: inflation rose from 5.54% to 6.1% in one month [2][1] and spread into services. By the time tightening comes, expectations may have already set in.
• Imported energy shocks: fuel costs feed transport inflation [1], and monetary policy cannot control them.
• Measurement gap: the new CPI series (base 2024) has sectoral data only from January 2026 [1]. The band was renewed before the new basket had been tested.
• Weak transparency: a failure report under Sec 45ZN goes to the government. It need not be published, and the 2022 report was not.

Should food be excluded?

• The Economic Survey 2023-24 suggested targeting inflation without food and using DBT or coupons to help the poor [6].
• October 2026 data argues against this. Food costs are already spreading into services, so a core-only target would catch the spread late. The RBI's review also noted that most economies still target headline inflation [4].

Way forward

• MPC: use core inflation as a supporting guide, and tighten only if services inflation persists.
• Government: manage supply through buffer stocks, OMSS and fuel-tax changes, and protect the poor through DBT.
• Accountability: publish Sec 45ZN reports.

FIT works well as a credible anchor for expectations, but it cannot handle supply shocks alone. Keeping headline-CPI targeting while adding supply-side coordination and open accountability would make price stability last. That protects real incomes and supports SDG-1 (no poverty) and SDG-2 (zero hunger).