Abstract
In this chapter, the trends in inflation are brought out and corrections made to the same since the CPI has major issues. We discuss the problems with the CPI, that even the core measure is erroneous, because of the treatment of rent expenditure by recourse to the government and public sector employees’ House Rent Allowance (HRA) as part of the rent payments. The weight for food being overly highin the Consumer Expenditure Surveys of the National Sample Survey. With the corrections, the inflation in recent times have been modest at around 5% of lower, and had steadily declined from 2011 to 2012 onwards. The mistaken reading of “high inflation” in 2010–11 may have been the basis for the rather steep monetary tightening that the RBI had put in place 2011–12. Furthermore, the rates of interest may have been higher than that indicated by the policy rates—repo and reverse repo—since the low-end bond yields were often well above the repo implying an unstated credit rationing indulged by the RBI. Rates had been coming down from the very high rates reached during the “taper tantrum” but rose again from 2017 and began to decline from 2018. Uncertainty in the financial market rose sharply from 2019 onwards.
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Notes
- 1.
Globally, the inflation could have been moderated by demand-side cuts by the major economies US, Europe, and China. All of which were growing faster than before creating a rising demand for oil and commodities. China being in the midst of its industrial transformation was the big demand-side factor in the rise of global commodity inflation. China accounted for about 35–40% of the world demand for cement, steel, non-ferrous metals, and construction.
- 2.
Thus, much of the “taking to task the banks” for their “lack of transmission”, before they had all but seized up from 2018, may only have been shadow boxing. Of course, the PSU Banking, Financial Services and Insurance (BFSI) (companies) would never point to the repo window being closed since in India the official (even a junior one) is well above CEOs of PSUs, even of a Fortune 500 company, and would never dream of directly confronting an official or a regulator. See the discussion on transmission later.
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Morris, S. (2022). Inflation and Monetary Developments. In: Macroeconomic Policy in India Since the Global Financial Crisis. India Studies in Business and Economics. Springer, Singapore. https://doi.org/10.1007/978-981-19-1276-4_5
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DOI: https://doi.org/10.1007/978-981-19-1276-4_5
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