Inflation is the worst form of an undeclared tax; it hurts the poor the most, lower middle class and the middle class in that order. Why do we say so? Because inflation, the one measured by the Consumer Price Index in particular, shaves off your real income.

On 12th of every month, the government releases year-on-year inflation data, measured by CPI for the previous month. The September CPI - inflation is 7.34 per cent on an annualized basis which means as compared to September,2019 your real income this year stands eroded at least this much. Mind you, this erosion in your income is on top of what your employer has already done due to Covid-19 pressure. The income loss on account of the pandemic is generally believed to be 30-50 per cent, if you are not amongst those unfortunate ones who have been benched out.

Let's return to inflation. It is the job of the Reserve Bank of India, assigned to it by Parliament, to target inflation at four per cent with plus or minus tolerance of another two percentage points. The Monetary Policy Committee, comprising RBI Governor, financial economists and government nominees, is obliged to review every two months to fix a policy interest rate, known as the REPO rate, in a manner that targets CPI inflation at four per cent.

Instead, what did the RBI -MPC do in the last policy review on October 9? Not only did it retain the REPO or the policy interest rate at four per cent, it categorically stated that although the underlying factors for ''tolerance band'' had stayed stubborn for several months, they ''can be looked through at this juncture while setting the stance of monetary policy''. It is a clear case of ‘’overlooking’’ the Parliamentary mandate.

That is not all, there is further assurance to the borrowers, the Government of India being the largest amongst them. (The Central Government is projected to borrow a whopping Rs 12 lakh crore in the current financial year). So, the RBI will continue with the ''accommodative stance... as long as necessary – at least during the current financial year and into the next financial year''. The reason, as enumerated by the policy statement is: To revive growth on a sustained basis and mitigate the impact of COVID -19.

What about inflation? Was not that the RBI’s prime obligation mandated by an amendment to the RBI Act, 1934, as part of the Finance Bill of 2016? While giving the RBI responsibility to contain inflation, it said: The Monetary Policy Committee shall determine the Policy Rate required to achieve the inflation target.

The target is four per cent and you have crossed it by two percentage point tolerance band for several months in a row. With this band, the tolerance limit is six per cent. But the CPI inflation is 7.34 per cent for September, 2020.

As mentioned, the price rise cuts into the consumer income. The 7.34 per cent for September is only the headline number. Disaggregating the data further, you get some real pain points: Food inflation is at 10.68 per cent. See further down the food inflation index: Vegetables:20.73 per cent, pulses and products 14.67 per cent, meat and fish 17.60 per cent, eggs 15.47 per cent. Saving grace is the category of cereals and products at 4.68 per cent.

There are influential economists and commentators who argue that food inflation is seasonal and should not weigh on the RBI's committee for fixing the interest rates. Other parameters are more important. Let's look at them: Prices of transport and communication went up by 11.50 per cent and personal care 12.31 per cent year-on-year.

Yet RBI has decided to ''look through'' inflation despite being mandated by Parliament to be mindful about it. Can the government afford to do the same – More so when elections are at hand in Bihar to be followed in West Bengal? Want to know the retail headline in Bihar? It is 8.83 per cent against the national average of 7.34 per cent. For West Bengal, it is further up, well past double digit at 10.50 per cent. If only the Opposition had time to spare for economic data and put some pressure on the government!

Inflation also hits interest on savings and those living on their bank fixed deposits. There are economists, industrialists and others who make a big case for India to tread the path of western and developed countries, which have zero or close to zero interest rates. But these countries do not have as high inflation as in India. Here, the real interest rate for depositors (fixed deposit rates adjusted against inflation) has already reached minus 2.34 per cent. For depositors, it is as if the money is kept in a bank's locker and not in accounts. Typically, users of bank lockers pay annual rent. Depositors, after adjusting the inflation, are left with negative returns which can be treated as annual rent for the banks' safe.

(Views are personal. The author is a Delhi-based senior journalist.)