Inflation has captured economic conversations recently. In a piece for Mint, Dr Niranjan Rajadhyaksha, Executive Director, Artha Global, opines that since the current rise in inflation is largely due to supply shocks, policy-makres’ interest in the supply side has been revived.
Excerpts below:
“Over the past couple of decades, central bankers, especially in advanced economies, have broadly believed that their main task was to manage aggregate demand in the economy. The supply side would smoothly adapt to changes in aggregate demand, especially since the rise of China in effect expanded the supply of labour as well as productive capacity on a global scale.”
“Many of these assumptions have been profoundly challenged in the past two years, thanks to supply chain disruptions, rising energy prices and the risk of food shortages. The supply side has been rigid rather than flexible. And the situation may persist because of geopolitical tensions as well as the new tide of protectionism.”
Read the full article here.
