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GS-III : Economic Issues Inflation

19 February, 2021
5 Min Read

Inflation- Its impact on the macro economic stability

Inflation- Its impact on the macroeconomic stability

Introduction

Consumer Price Index (CPI) rose by 4.06% in January, marking a deceleration for a second straight month to a 16-month low.

Reasons in decline of retail inflation

Bumper kharif crop: The Consumer Food Price Index reflected a gain of a mere 1.89% last month as vegetable prices saw a disinflation of 15.8% and cereal prices eased considerably for a second month in the wake of kharif crop arrivals.
Good rabi harvest: Rising prospects of a good rabi harvest
Vegetable production: Larger winter arrivals of key vegetables
Avian flu fears: Softer egg and poultry demand on avian flu fears.

Associated risks with low inflation

While inflation in pulses and products was at 13.4%, that for oils and fats stood at 19.7%. Eggs and meat and fish — two other key sources of protein — both posted double-digit rates of 12.9% and 12.5%, respectively, with price gains in the former barely registering any telling impact from the avian flu outbreak.
From automobile manufacturers to builders, rising raw material costs are beginning to force them to pass on the impact to the end consumers.
The latest IHS Markit India Manufacturing Purchasing Managers’ Index (PMI) points to the sharpest increase in purchasing costs for more than two years as ‘a lingering supply-side squeeze’ fanned inflationary pressures and manufacturers raised their product prices at the fastest pace in over a year.
Add to the mix the unrelenting and dizzying climb in transportation fuel prices to newer and newer record highs in recent days and the outlook for inflation becomes distinctly darker.
- Diesel, the main fuel for freight carriage, has now exceeded ?80 per litre and is bound to feed into prices of almost everything being transported across distances — from fresh produce to intermediate and finished industrial goods.

Conclusion

With banks still flush with liquidity, policymakers need to maintain a strict vigil to keep inflation from resurging and posing a threat to macro-economic stability.

Read more about Inflation- Click here

Source: TH

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