Persisting inflation hindering growth and increasing hardship of people

Price inflation in the Indian economy has been persisting by more than 6% - the upper tolerance limit of RBI - for 10 months in a row. It is mandatory for the RBI to answer India’s government if the inflation remains 6% or more for more than two quarters sequentially.

- Kishore Kumar Biswas

After the Monetary Policy Committee (MPC) meeting held last September, Shaktikanta Das, RBI Governor, said, “The inflation trajectory remains clouded with uncertainties arising from continuing geopolitical tensions and nervous global financial market sentiment.” This means that RBI has not been able to tame inflation by applying its monetary policy. From May, RBI hiked the repo rate four times and by 190 basis points (that means 1.9%). Many observers think that inflation in India will persist and in December, the MPC may further increase the repo rate by 50 basis points.

Some ground work to understand inflation

At the outset, one must know the meaning of inflation. It is a condition of persistent rise in general levels of prices. All the prices of commodities may not rise at the same time and even prices of some goods may fall in that period of general price rise. There are mainly two types of indices to measure inflation. The consumers’ price index (CPI) and the wholesale price index (WPI). When inflation is measured by some index that uses all prices, usually the WPI, it is called headline inflation. It is seen that prices of food and fuel have special significance due their vulnerability. In that case, one gets core inflation which is obtained by subtracting food and fuel inflation from core inflation.