Former Reserve Bank of India (RBI) Governor Raghuram Rajan has voiced strong opposition to suggestions of excluding food inflation when setting benchmark interest rates. He argued that doing so would undermine public trust in the central bank and distort the real inflation experience faced by consumers.

Rajan emphasized that inflation should reflect the costs consumers encounter in their daily lives. Ignoring critical elements like food prices, he warned, would create a gap between official inflation figures and public perception. "When consumers face soaring food prices but are told inflation is low, it erodes their faith in the RBI," Rajan said.

His comments come in response to proposals outlined in the Economic Survey 2023-24, which advocated for excluding food inflation from interest rate decisions, citing supply-side factors as the primary drivers of food costs. However, Rajan countered that central banks must address inflation in all areas when food prices remain elevated over time, even if they can’t directly control short-term food price spikes.

Rajan, currently a professor of finance at Chicago Booth, highlighted that the current food price weighting in the Consumer Price Index stands at 46%, and it may need revisiting. He also reaffirmed that the RBI’s inflation-targeting framework, introduced in 2016, should focus on keeping overall inflation in check to maintain credibility and public confidence.