Inflation is rising globally due to supply shocks and systemic stresses. However, the situation in India is less worrying than that in many rich economies. In a piece for Mint, Dr Niranjan Rajadhyaksha, Executive Director, Artha Global, puts the inflation numbers into context.
Excerpts below:
“The numbers show that the Western world, which chose oversized stimulus packages during the worst months of the pandemic, are in the midst of full-fledged inflation shocks. For reasons specific to each country, India, China and Japan are better off. A good thumb-rule is that countries with greater distance from their inflation targets as well as past inflation need to react more strongly to price pressures than countries where the distance is smaller.”
“That said, the tricky bit for the Indian MPC is to figure out whether it wants to use the interest rate solely to target inflation, or also use it to manage the exchange rate as well as financial stability. Economic theory tells us that each policy instrument should ideally be matched with one policy target. But, as J.P. Morgan’s chief India economist Sajjid Chinoy has argued in a recent piece, there are feedback loops between internal and external macroeconomic stability.”
Read the full article here.
