Education, health drive inflation, says RBI

Rajan keeps key rates unchanged; asks Centre to be vigilant on rising retail prices

The Reserve Bank of India (RBI) on Tuesday flagged off concern regarding a spike in non-food price inflation especially in education and health services even as it kept key rates — repo and reverse repo — unchanged.

In its fifth bi-monthly monetary policy statement, RBI said that CPI inflation excluding food, fuel, petrol and diesel also rose for three consecutive months on account of price increases in respect of housing, recreation and amusement, and personal care and effects.Within this broad category, education and health services contributed most to headline inflation.

Households’ inflation expectations remain elevated although they have edged lower recently, perhaps in response to lower prices of petrol and diesel, the RBI noted.

“Services inflation is obviously a source of concern,” said RBI governor Raghuram Rajan, governor, while addressing the media here.

According to him, the spike in services inflation largely reflects the supply side constraints in our economy as high quality education and high quality healthcare or reasonable quality education and reasonable quality healthcare are relatively in short supply.

“That is one reason why we keep saying that this is not just about food, it’s about other elements. But that has been coming down over the last year or so,” he said.

Pointing out that taxes also impact services inflation, Dr Rajan said that the impact of the GST on inflationary pressure should also have to be considered going forward.

“We will have to figure out a way as and when the GST comes in. It is something that we will have to adjust for going forward,” Dr Rajan added.