Should India target **core** rather than **headline** CPI inflation? Discuss in light of persistent food-price volatility.

Under Section 45ZA of the RBI Act, 1934, the Centre sets the inflation target in consultation with the RBI. It has renewed the 4% ±2% headline CPI target for 2026–31 [1]. In October 2026, headline inflation reached 6.1%, led by food at 8.5% [2]. This has reopened the question of whether core inflation (which excludes food and fuel) should be the anchor instead.

Case for targeting core

• Food shocks come from supply: The Economic Survey 2023-24 said food price rises are mostly supply-induced. A higher repo rate cannot fix a failed monsoon or a bad harvest [3].
• Overreacting is costly: Raising rates against a vegetable price spike cuts credit, investment and jobs, but food prices do not come down.
• Better tools exist: The Survey suggested DBT or time-bound coupons to protect poor households instead [3].
• Noisy signal: Food has a large weight in CPI, so volatile food prices make the headline number jumpy and forward guidance harder.

Case for retaining headline

• Second-round effects: In October 2026, restaurants & accommodation inflation hit 10.1% and transport 5.8% [2]. Headline inflation also jumped from 5.54% in September [4]. Food and fuel costs are spreading to services, and a core-only target would catch this late.
• Expectations: Households judge inflation mostly by food prices. Those expectations then feed into wage and rent demands.
• Welfare and credibility: A target that leaves out the price rise families feel most would weaken public trust in the RBI.
• Global practice: The RBI's August 2025 discussion paper noted that nearly all inflation-targeting economies, advanced and emerging, target headline inflation [5].
• Flexibility is already built in: The ±2% band lets the MPC look through short-lived food shocks.

Way forward

• Keep headline as the legal target, as the 2026 renewal did [1]. Use core as a supporting indicator to tell a passing food spike from a broad price rise [5].
• Government handles supply: buffer stocks, open-market sales, cold chains and PDS reform.
• Coordinate fiscal and monetary policy, and protect vulnerable groups through DBT [3].

Food-price volatility explains why core-inflation targeting appeals, but the October 2026 spread to services shows why headline must stay the anchor. The answer is division of labour: the MPC watches core while targeting headline, and the government tackles supply shocks directly. This keeps the credibility of Flexible Inflation Targeting and protects household purchasing power, in line with SDG 2 (Zero Hunger).