Inflation's persistent challenge

13 SEP,2020 | MEDC


 

India is one of the world’s few large economies where inflation has actually risen since the start of the pandemic. This could be partly due to the fact that the supply crunch during the lockdown has been more severe than the demand crunch in the same period. This toxic mix of persistently high inflation combined with high unemployment and stagnant demand (stagflation) in India’s economy is likely to constrain future policy responses both by the government and the RBI. It does not bode well for a sustained economic revival. However, the monsoon this year has been largely favourable, and so it is likely that the agricultural sector could bounce back and become the engine for a rural recovery. In the long run, inflation will need to be tamed, whether it is achieved by targeting the exchange rate or the money supply. Given the extent of the damage inflicted by Covid on our economy, the coming months will test the innate resilience of the system. Much of it is simply a demand and supply mismatch

*Photo Credit: Google

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