Rupee deflation
The RBI primarily tracks consumer inflation, and wholesale prices do not directly guide its monetary policy. But a rise in the latter implies costlier inputs that can push retail price tags up, and that too, in bits and spurts that are hard to predict, complicating policy responses
Inflation in India expectedly turned worse in April. After the rate of retail-price escalation was found to have hit an eight-year high, now inflation tracked by our wholesale price index has reached the highest level in its current series. It was 15.08% last month, compared with 14.55% in March, according to data released on Tuesday. This marks the 13th month in a row that wholesale inflation has been in double digits.
Blame commodity and food prices, which have been on the boil thanks to supply shocks caused by Russia’s invasion of Ukraine. While the source of the flare-up is external, the high reading poses a headache for our policymakers. The Reserve Bank of India primarily tracks consumer inflation, and wholesale prices do not directly guide its monetary policy. But a rise in the latter implies costlier inputs that can push retail price tags up, and that too, in bits and spurts that are hard to predict, complicating policy responses. Defenders of our central bank’s slow awakening to a problem of runaway prices often argue that tighter money will not solve it because it cannot ease supplies. But policy rates remain negative in real terms, and ultra-cheap credit tends to be inflationary.
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