Inflation realities

Further gains in the long battle to bring Indian inflation closer to the emerging market average will not come easily


Photo: Bloomberg
Photo: Bloomberg

The inflation momentum in recent months should be a warning to those who are screaming for drastic interest rate cuts. Wholesale price inflation has climbed a cumulative 207 basis points over the past three months while consumer price inflation in June was 94 basis points higher than its March level. A basis point is a hundredth of a percentage point.

Inflation measured by both these indicators is close to its highest level in two years. It is not our case that inflation is about to go out of control, as it did in the first three years of this decade. However, further gains in the long battle to bring Indian inflation closer to the emerging market average will not come easily. What is needed is a conservative monetary policy as well as policies to ease supply-side constraints in the food economy.

The next Reserve Bank of India chief should be wary of the confidence the bond market is displaying about our inflation trajectory.

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