The acyclical inflation threat in India
The RBI may draw some comfort from the fact that the inflation-targeting framework is helping structurally to rein in inflationary pressures
For consumer inflation, yesterday’s tailwinds have become today’s headwinds. If imported inflation helped lower the consumer price index (CPI)-based inflation to an average 3.6% last fiscal from 9.9% in 2013—of course helped also by a prudent government stance on minimum support prices (MSPs) and the Reserve Bank of India’s (RBI) inflation-targeting framework—it is stoking it now. CPI inflation flared up to 4.9% in May, fuelled by rising prices of imported crude. In this context, segregating inflation components into pro-cyclical and acyclical parts, and analysing their movement, is revelatory indeed.