A recent agreement between the government and the Reserve Bank of India will regard the apex bank as having failed if it cannot control inflation. But food inflation, which contributes about 46 per cent to overall inflation, is determined by supply and cannot be directly controlled by monetary policy. Experts said since flexible inflation targeting was now the objective, the RBI could not escape its responsibility even if food prices were affected by an imperfect supply situation. CPI inflation rises to the double digits by a mere 2.5 percentage point increase in the price of food. Monetary policy can at best prevent food inflation from spreading across the economy through wage hike demands.

Source - http://www.business-standard.com