{"id":114807,"date":"2021-06-25T11:07:58","date_gmt":"2021-06-25T05:37:58","guid":{"rendered":"https:\/\/blog.forumias.com\/?p=114807"},"modified":"2021-06-25T11:07:58","modified_gmt":"2021-06-25T05:37:58","slug":"the-usual-tools-are-unlikely-to-fix-our-inflation-problem","status":"publish","type":"post","link":"https:\/\/forumias.com\/blog\/the-usual-tools-are-unlikely-to-fix-our-inflation-problem\/","title":{"rendered":"The usual tools are unlikely to fix our inflation problem"},"content":{"rendered":"\n<p>&nbsp;<\/p>\n<p><b><span data-contrast=\"none\">Context<\/span><\/b><span data-contrast=\"none\">:\u00a0High consumer and wholesale price inflation along with no\/low growth means that India might\u00a0enter into\u00a0a\u00a0stagflation\u00a0phase. Traditional macroeconomic approach may not be\u00a0optimum\u00a0in\u00a0such\u00a0case.\u00a0We need a more comprehensive set of policies to address the peculiar kind of inflation that India is\u00a0facing.<\/span><span data-ccp-props=\"{&quot;134233279&quot;:true,&quot;201341983&quot;:0,&quot;335551550&quot;:1,&quot;335551620&quot;:1,&quot;335559739&quot;:160,&quot;335559740&quot;:259}\">\u00a0<\/span><\/p>\n<h5><b><span data-contrast=\"none\">What is stagflation?<\/span><\/b><span data-ccp-props=\"{&quot;134233279&quot;:true,&quot;201341983&quot;:0,&quot;335551550&quot;:2,&quot;335551620&quot;:2,&quot;335559739&quot;:160,&quot;335559740&quot;:259}\">\u00a0<\/span><\/h5>\n<p><span data-contrast=\"none\">Stagflation\u00a0occurs when economic output\u00a0<\/span><b><span data-contrast=\"none\">stagnates\u00a0<\/span><\/b><span data-contrast=\"none\">but\u00a0<\/span><b><span data-contrast=\"none\">inflation keeps rising<\/span><\/b><span data-contrast=\"none\">.\u00a0It\u00a0leads\u00a0to\u00a0<\/span><b><span data-contrast=\"none\">unemployment\u00a0<\/span><\/b><span data-contrast=\"none\">and<\/span><b><span data-contrast=\"none\">\u00a0poor consumer demand<\/span><\/b><span data-contrast=\"none\">.<\/span><span data-ccp-props=\"{&quot;134233279&quot;:true,&quot;201341983&quot;:0,&quot;335551550&quot;:1,&quot;335551620&quot;:1,&quot;335559739&quot;:160,&quot;335559740&quot;:259}\">\u00a0<\/span><\/p>\n<p><span data-contrast=\"none\">These localized micro-level factors and the\u00a0high-level of\u00a0uncertainty\u00a0being faced by households and\u00a0firms\u00a0currently, means that inflation will be on incline. In such cases, monetary policy might\u00a0be ineffective.<\/span><span data-ccp-props=\"{&quot;134233279&quot;:true,&quot;201341983&quot;:0,&quot;335551550&quot;:1,&quot;335551620&quot;:1,&quot;335559739&quot;:160,&quot;335559740&quot;:259}\">\u00a0<\/span><\/p>\n<h5><b><span data-contrast=\"none\">What should be done instead?<\/span><\/b><span data-ccp-props=\"{&quot;134233279&quot;:true,&quot;201341983&quot;:0,&quot;335551550&quot;:1,&quot;335551620&quot;:1,&quot;335559739&quot;:160,&quot;335559740&quot;:259}\">\u00a0<\/span><\/h5>\n<ul>\n<li data-leveltext=\"\uf0b7\" data-font=\"Symbol\" data-listid=\"12\" aria-setsize=\"-1\" data-aria-posinset=\"16\" data-aria-level=\"1\"><span data-contrast=\"none\">Causes, such as\u00a0<\/span><b><span data-contrast=\"none\">pandemic-driven anxiety, rising uncertainty among consumers and capital scarcity<\/span><\/b><span data-contrast=\"none\">\u00a0among producers, require\u00a0<\/span><b><span data-contrast=\"none\">fiscal-monetary support measures\u00a0<\/span><\/b><span data-contrast=\"none\">that would allow consumer and producer sentiment to improve.<\/span><span data-ccp-props=\"{&quot;134233279&quot;:true,&quot;201341983&quot;:0,&quot;335551550&quot;:1,&quot;335551620&quot;:1,&quot;335559739&quot;:160,&quot;335559740&quot;:259}\">\u00a0<\/span><\/li>\n<li data-leveltext=\"\uf0b7\" data-font=\"Symbol\" data-listid=\"12\" aria-setsize=\"-1\" data-aria-posinset=\"17\" data-aria-level=\"1\"><b><span data-contrast=\"none\">Direct income support<\/span><\/b><span data-contrast=\"none\">: On the fiscal front, government should\u00a0provide\u00a0<\/span><b><span data-contrast=\"none\">greater direct income support through unconditional cash transfers<\/span><\/b><span data-contrast=\"none\">\u00a0to households, giving them the means to spend.\u00a0<\/span><span data-ccp-props=\"{&quot;134233279&quot;:true,&quot;201341983&quot;:0,&quot;335551550&quot;:1,&quot;335551620&quot;:1,&quot;335559739&quot;:160,&quot;335559740&quot;:259}\">\u00a0<\/span><\/li>\n<\/ul>\n<ul>\n<li data-leveltext=\"o\" data-font=\"Courier New\" data-listid=\"12\" aria-setsize=\"-1\" data-aria-posinset=\"9\" data-aria-level=\"2\"><span data-contrast=\"none\">This would help\u00a0<\/span><b><span data-contrast=\"none\">drive both private investment and employment<\/span><\/b><span data-contrast=\"none\">.\u00a0<\/span><span data-ccp-props=\"{&quot;134233279&quot;:true,&quot;201341983&quot;:0,&quot;335551550&quot;:1,&quot;335551620&quot;:1,&quot;335559739&quot;:160,&quot;335559740&quot;:259}\">\u00a0<\/span><\/li>\n<li data-leveltext=\"o\" data-font=\"Courier New\" data-listid=\"12\" aria-setsize=\"-1\" data-aria-posinset=\"10\" data-aria-level=\"2\"><span data-contrast=\"none\">Unconditional cash support would\u00a0<\/span><b><span data-contrast=\"none\">expand the\u00a0capacity\u00a0of all households\u00a0<\/span><\/b><span data-contrast=\"none\">to make discretionary expenditures.<\/span><span data-ccp-props=\"{&quot;134233279&quot;:true,&quot;201341983&quot;:0,&quot;335551550&quot;:1,&quot;335551620&quot;:1,&quot;335559739&quot;:160,&quot;335559740&quot;:259}\">\u00a0<\/span><\/li>\n<\/ul>\n<h5><b><span data-contrast=\"none\">Why conditional cash transfers in such cases are difficult?<\/span><\/b><span data-ccp-props=\"{&quot;134233279&quot;:true,&quot;201341983&quot;:0,&quot;335551550&quot;:1,&quot;335551620&quot;:1,&quot;335559739&quot;:160,&quot;335559740&quot;:259}\">\u00a0<\/span><\/h5>\n<ul>\n<li data-leveltext=\"\uf0b7\" data-font=\"Symbol\" data-listid=\"13\" aria-setsize=\"-1\" data-aria-posinset=\"18\" data-aria-level=\"1\"><span data-contrast=\"none\">Increased allocation for our rural employment scheme would pay only those who work, and that too, on the assumption that there is work in those areas.<\/span><span data-ccp-props=\"{&quot;134233279&quot;:true,&quot;201341983&quot;:0,&quot;335551550&quot;:1,&quot;335551620&quot;:1,&quot;335559739&quot;:160,&quot;335559740&quot;:259}\">\u00a0<\/span><\/li>\n<li data-leveltext=\"\uf0b7\" data-font=\"Symbol\" data-listid=\"13\" aria-setsize=\"-1\" data-aria-posinset=\"19\" data-aria-level=\"1\"><span data-contrast=\"none\">At a time when infections are rising in rural areas and mutant variants of the virus are infecting unvaccinated groups, little rural employment guarantee work may be available, or worse, people may be too afraid to leave home and go work. Conditional cash transfers in such times are less effective.<\/span><span data-ccp-props=\"{&quot;134233279&quot;:true,&quot;201341983&quot;:0,&quot;335551550&quot;:1,&quot;335551620&quot;:1,&quot;335559739&quot;:160,&quot;335559740&quot;:259}\">\u00a0<\/span><\/li>\n<\/ul>\n<h5><b><span data-contrast=\"none\">Way forward<\/span><\/b><span data-ccp-props=\"{&quot;134233279&quot;:true,&quot;201341983&quot;:0,&quot;335551550&quot;:1,&quot;335551620&quot;:1,&quot;335559739&quot;:160,&quot;335559740&quot;:259}\">\u00a0<\/span><\/h5>\n<p><span data-contrast=\"none\">Going forward, the key to framing a comprehensive response to inflationary tensions would be to pursue a localized and counter-cyclical\u00a0<\/span><i><span data-contrast=\"none\">(contrary to the fluctuations in an economic cycle)<\/span><\/i><span data-contrast=\"none\">\u00a0fiscal-monetary approach.\u00a0<\/span><span data-ccp-props=\"{&quot;134233279&quot;:true,&quot;201341983&quot;:0,&quot;335551550&quot;:1,&quot;335551620&quot;:1,&quot;335559739&quot;:160,&quot;335559740&quot;:259}\">\u00a0<\/span><\/p>\n<ul>\n<li data-leveltext=\"\uf0b7\" data-font=\"Symbol\" data-listid=\"14\" aria-setsize=\"-1\" data-aria-posinset=\"20\" data-aria-level=\"1\"><span data-contrast=\"none\">This should combine the instruments of direct government support with easy liquidity and bank credit provisions, so that firms and households have a wider set of choices.<\/span><span data-ccp-props=\"{&quot;134233279&quot;:true,&quot;201341983&quot;:0,&quot;335551550&quot;:1,&quot;335551620&quot;:1,&quot;335559739&quot;:160,&quot;335559740&quot;:259}\">\u00a0<\/span><\/li>\n<\/ul>\n<p><b><span data-contrast=\"none\">Conclusion<\/span><\/b><span data-ccp-props=\"{&quot;134233279&quot;:true,&quot;201341983&quot;:0,&quot;335551550&quot;:1,&quot;335551620&quot;:1,&quot;335559739&quot;:160,&quot;335559740&quot;:259}\">\u00a0<\/span><\/p>\n<p><span data-contrast=\"none\">Fixing supply disruptions solely through monetary policy tools, is likely to prove ineffective. It could even drive other aggregates like consumption and private investment demand into deeper\u00a0recession.<\/span><span data-ccp-props=\"{&quot;134233279&quot;:true,&quot;201341983&quot;:0,&quot;335551550&quot;:1,&quot;335551620&quot;:1,&quot;335559739&quot;:160,&quot;335559740&quot;:259}\">\u00a0<\/span><\/p>\n<p><b><span data-contrast=\"none\">Terms to know<\/span><\/b><span data-ccp-props=\"{&quot;134233279&quot;:true,&quot;201341983&quot;:0,&quot;335551550&quot;:1,&quot;335551620&quot;:1,&quot;335559739&quot;:160,&quot;335559740&quot;:259}\">\u00a0<\/span><\/p>\n<ul>\n<li data-leveltext=\"\uf0b7\" data-font=\"Symbol\" data-listid=\"15\" aria-setsize=\"-1\" data-aria-posinset=\"21\" data-aria-level=\"1\"><span data-contrast=\"none\">Monetary policy\u00a0tools<\/span><span data-ccp-props=\"{&quot;134233279&quot;:true,&quot;201341983&quot;:0,&quot;335551550&quot;:1,&quot;335551620&quot;:1,&quot;335559739&quot;:160,&quot;335559740&quot;:259}\">\u00a0<\/span><\/li>\n<li data-leveltext=\"\uf0b7\" data-font=\"Symbol\" data-listid=\"15\" aria-setsize=\"-1\" data-aria-posinset=\"22\" data-aria-level=\"1\"><span data-contrast=\"none\">Types of inflation<\/span><span data-ccp-props=\"{&quot;134233279&quot;:true,&quot;201341983&quot;:0,&quot;335551550&quot;:1,&quot;335551620&quot;:1,&quot;335559739&quot;:160,&quot;335559740&quot;:259}\">\u00a0<\/span><\/li>\n<\/ul>\n<p><b><span data-contrast=\"none\">Source<\/span><\/b><span data-contrast=\"none\">:\u00a0<\/span><a href=\"https:\/\/www.livemint.com\/opinion\/online-views\/the-usual-tools-are-unlikely-to-fix-our-inflation-problem-11624465227018.html\"><span data-contrast=\"none\">Livemint<\/span><\/a><span data-ccp-props=\"{&quot;134233279&quot;:true,&quot;201341983&quot;:0,&quot;335551550&quot;:1,&quot;335551620&quot;:1,&quot;335559739&quot;:160,&quot;335559740&quot;:259}\">\u00a0<\/span><\/p>\n","protected":false},"excerpt":{"rendered":"<p>&nbsp; Context:\u00a0High consumer and wholesale price inflation along with no\/low growth means that India might\u00a0enter into\u00a0a\u00a0stagflation\u00a0phase. Traditional macroeconomic approach may not be\u00a0optimum\u00a0in\u00a0such\u00a0case.\u00a0We need a more comprehensive set of policies to address the peculiar kind of inflation that India is\u00a0facing.\u00a0 What is stagflation?\u00a0 Stagflation\u00a0occurs when economic output\u00a0stagnates\u00a0but\u00a0inflation keeps rising.\u00a0It\u00a0leads\u00a0to\u00a0unemployment\u00a0and\u00a0poor consumer demand.\u00a0 These localized micro-level factors and&hellip; <a class=\"more-link\" href=\"https:\/\/forumias.com\/blog\/the-usual-tools-are-unlikely-to-fix-our-inflation-problem\/\">Continue reading <span class=\"screen-reader-text\">The usual tools are unlikely to fix our inflation problem<\/span><\/a><\/p>\n","protected":false},"author":61,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"jetpack_post_was_ever_published":false,"footnotes":""},"categories":[1230,9],"tags":[],"class_list":["post-114807","post","type-post","status-publish","format-standard","hentry","category-9-pm-daily-articles","category-public","entry"],"jetpack_featured_media_url":"","views":{"total":0,"cached_at":1700790835,"cached_date":1704369092},"jetpack_sharing_enabled":true,"_links":{"self":[{"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/posts\/114807","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/users\/61"}],"replies":[{"embeddable":true,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/comments?post=114807"}],"version-history":[{"count":0,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/posts\/114807\/revisions"}],"wp:attachment":[{"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/media?parent=114807"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/categories?post=114807"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/tags?post=114807"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}