{"id":189289,"date":"2022-06-07T20:58:30","date_gmt":"2022-06-07T15:28:30","guid":{"rendered":"https:\/\/blog.forumias.com\/?p=189289"},"modified":"2022-06-07T20:59:15","modified_gmt":"2022-06-07T15:29:15","slug":"the-inflation-spectrometer","status":"publish","type":"post","link":"https:\/\/forumias.com\/blog\/the-inflation-spectrometer\/","title":{"rendered":"The inflation spectrometer"},"content":{"rendered":"\n

News:<\/strong> Inflation is a macroeconomic phenomeno<\/strong>n which is under pressure at global and local level.<\/p>\n

Major driving factors behind inflation<\/strong><\/h5>\n

Inflation is caused by a number of factors which may includ supply, demand, local and global factors.<\/p>\n

Globally<\/strong><\/h5>\n

The inflation started with the US fiscal stimulus <\/strong>during Covid-19. This pushed inflation. This led to increased demand when global production was impaired due to Covid-19. \u00a0This resulted into shortages<\/strong> and longer delivery times. <\/strong><\/p>\n

The wage-price spiral<\/strong> (when higher prices lead to higher wages, which in turn drive the next round of price hikes) is now visible in the US. This may be visible across the world.<\/p>\n

The Russia-Ukraine conflict<\/strong> has made it harder to adjust with demand and supply disruption caused earlier. The conflict and the associated sanctions have reduced the global supply of food and energy.<\/p>\n

The countries are competing for the remaining supplies of energy<\/strong>. This has been the driving force in pushing up prices.<\/p>\n

In addition, Higher prices have also not<\/strong> triggered investments<\/strong> in new supplies yet, as suppliers lack crtainty on how long the shortages may persist.<\/p>\n

Local drivers of inflation: <\/strong><\/h5>\n

Inflation occurs when a stimulus pushes<\/strong> aggregate demand above the economy\u2019s capacity to meet it. In India, the total government deficit<\/strong> is higher than in pre-Covid times. The recent fiscal steps to prevent a rise in fertiliser and fuel prices may lead to spreading of inflation over a longer period.<\/p>\n

The rise in India\u2019s current account deficit (CAD<\/strong>) suggests domestic demand, at present, is unsustainable.<\/p>\n

The labour market is also the most important driver of sticky inflation. The NREGA work demand has reduced. It is the most reliable indicator of unemployment in India.<\/p>\n

Some other drivers of Indian inflation are the rise in telecom tariffs<\/strong>, and the low base of cereals prices<\/p>\n

Measures Taken<\/strong><\/p>\n

Nearly every major economy has announced energy subsidies due to domestic political compulsions as well as the need to sustain growth,<\/p>\n

What are the issues in fiscal and monetary policy measures?<\/strong><\/h5>\n

The fiscal and monetary<\/strong> measures<\/strong> have limited implications. They cannot offset the shortages. The above-mentioned fiscal measures<\/strong> will only prolong the period of higher energy prices.<\/p>\n

Way Forward<\/strong><\/p>\n

The US federal fiscal deficit<\/strong> as a share of gross domestic product or GDP has declined. There is an ongoing switch between goods-to-services <\/strong>in consumption; shipping bottlenecks have been easing; global industrial production has restarted, and there is evidence of excessive inventory <\/strong>in many supply chains.<\/p>\n

The US needs to do further monetary tightening. <\/strong><\/p>\n

The Monetary Policy Committee<\/strong> should target the inflation. Further, the consumer price index may provide a better measure of persistent inflationary impulses<\/strong> in the economy that monetary policy can try to address.<\/p>\n

There should be normalisation of rates <\/strong>given the healthy post-Covid recovery.<\/p>\n

Instead of using interest rates, the government can let the rupee weaken to address the BOP imbalance.<\/p>\n

Source<\/strong>: The post is based on an article \u201cThe inflation spectrometer<\/strong>\u201d published in the Business Standard<\/strong> on 7th<\/sup> June 2022<\/strong>.<\/p>\n","protected":false},"excerpt":{"rendered":"

News: Inflation is a macroeconomic phenomenon which is under pressure at global and local level. Major driving factors behind inflation Inflation is caused by a number of factors which may includ supply, demand, local and global factors. Globally The inflation started with the US fiscal stimulus during Covid-19. This pushed inflation. This led to increased… Continue reading The inflation spectrometer<\/span><\/a><\/p>\n","protected":false},"author":10328,"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":[10503,216],"class_list":["post-189289","post","type-post","status-publish","format-standard","hentry","category-9-pm-daily-articles","category-public","tag-business-standard","tag-gs-paper-3","entry"],"jetpack_featured_media_url":"","views":{"total":0,"cached_at":1700771832,"cached_date":1701722894},"jetpack_sharing_enabled":true,"_links":{"self":[{"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/posts\/189289","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\/10328"}],"replies":[{"embeddable":true,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/comments?post=189289"}],"version-history":[{"count":0,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/posts\/189289\/revisions"}],"wp:attachment":[{"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/media?parent=189289"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/categories?post=189289"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/tags?post=189289"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}