Persistent high inflationundermined RBI’s effort torevive growth
- Posted By
10Pointer
- Categories
Economy
- Published
7th Dec, 2020
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Retail inflation had gone up for just a couple of months.
Context
- Retail inflation had gone up for just a couple of months.
What are the main reasons behind the persistent high inflation?
- Higher food prices, especially fruits and vegetable prices
- supply chain disruptions
- excessive margins
- high indirect taxes
- Covid-19 pandemic
How the RBI control high inflation?
- The RBI is, by law, required to maintain the retail inflation rate within a band of 2%and 6%.
- By increasing repo rate or the interest rate at which it lends money to banks.
- Higher interest rates would wean off a sufficient number of people away from spending and into investing thus bringing down the price level.
What government would do to control it?
- Boost the supply chain
- Reduction in indirect taxes
- Reduce marginal rates
Why RBI is refraining from cutting interest rate?
- As the GDP had reached to its lowest point amid Covid to around 24% in negative, the RBI is tasked to revive the economy so it had to cut the interest rates in consecutive quarters to boost economic activity.
What is Inflation?
Inflation is the decline of purchasing power of a given currency over time. The rise in the general level of prices, is often expressed a high inflation.
Inflation can be classified into three types: Demand-Pull inflation, Cost-Push inflation, and Built-In inflation.
Who measures Inflation in India?
- The Ministry of Statistics and Programme Implementation measures inflation.
How is Inflation measured?
- In India, inflation is primarily measured by two main indices — WPI (Wholesale Price Index) and CPI (Consumer Price Index.
- The CPI calculates the difference in the price of commodities and services such as food, medical care, education, electronics etc, which Indian consumers buy for use.
- The goods or services sold by businesses to smaller businesses for selling further are captured by the WPI.
- In India, both WPI (Wholesale Price Index) and CPI (Consumer Price Index) are used to measure inflation.
What are the main causes of Inflation?
- High demand and low production or supply of multiple commodities create a demand-supply gap, which leads to a hike in prices.
- Excess circulation of money leads to inflation as money loses its purchasing power.
- With people having more money, they also tend to spend more, which causes increased demand.
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