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Inflation and Monetary Developments

In: Macroeconomic Policy in India Since the Global Financial Crisis

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  • Sebastian Morris

    (Goa Institute of Management
    Indian Institute of Management Ahmedabad)

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.

Suggested Citation

  • Sebastian Morris, 2022. "Inflation and Monetary Developments," India Studies in Business and Economics, in: Macroeconomic Policy in India Since the Global Financial Crisis, chapter 0, pages 61-76, Springer.
    • Handle: RePEc:spr:isbchp:978-981-19-1276-4_5
    DOI: 10.1007/978-981-19-1276-4_5
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