In fact, if one were to consider the real returns/interest rates – which are arrived at by deducting inflation from the benchmark policy rates - India has done reasonably well compared to the Euro Zone or the US where the real rates are in the range of negative 7-8 per cent whereas in India, it is at 1.60 per cent or 160 basis points. This was reiterated by Finance Minister Nirmala Sitharaman when she said that nobody was in denial about the state of the economy and that the RBI had taken necessary steps to keep inflation under check.
In fact, our economy has done better compared to many marquee economies. The result of all this is that prices of steel, cement, crude oil, and refined palm oil have come down by 10-20 per cent from their peaks. The government also slapped a ban on the export of wheat, prices of which had gone by more than 50 per cent due to the war in Ukraine. This was the third hike since May, taking the total increase to 140 basis points, reflecting RBI’s increased monetary policy vigilance on the growing role of imported inflation, especially if external shocks become stronger.Īn RBI report points out that there is some evidence of the supply chain pressures peaking globally and inflationary pressures seem to have plateaued. The government has taken several steps to combat inflation like cutting excise and import duty while levying export duty on sensitive products. The Monetary Policy Committee of the RBI increased the repo rate by 50 basis points recently to 5.40 per cent, taking it above the pre-pandemic level of 5.15 per cent. In the US, the Federal Reserve Board hiked its policy rate three times from January to July this year, by a total of 225 basis points, to reach 2.25 per cent - with further rate hikes anticipated in the coming months. The Bank of England hiked interest rates by 50 basis points to 1.75 per cent a few days back, its largest single increase since 1995. While Argentina has increased the policy rates by a humongous 1,200 points, its neighbour Brazil has increased the benchmark rate by 400 points. Of the developed economies, only Japan, where inflation is never an issue, is doing better - inflation was at 2.5 per cent - above the target of 2 per cent set by the Japanese central bank.Ĭentral banks around the world are hiking policy rates to rein in inflation.
Inflation was a whopping 74 per cent in Turkey and 54 per cent in Argentina. The UK and the European Union are in a crisis, with inflation jumping to 8.6 per cent in June due to soaring energy prices as Russia reduced the supply of natural gas to Europe.
The inflation rate in the US in June was at a 40-year high of 9.1 per cent, driven by a rise in the prices of oil and food. What is worrisome is that inflation had stayed above 7 per cent for six consecutive months until August.īut is inflation unique to India? The US, Europe and the rest of the world are also facing high inflation. Though retail inflation in India drifted lower to 7 per cent in June, from an eight-year high of 7.80 per cent in April, it is still well above the tolerance limit of 6 per cent set by the RBI. The current run-up in prices is due to the geopolitical tensions in Ukraine, the rise in commodity prices and global supply chain pressures. The rise in prices of commodities can happen either from the demand side or the supply side. The opposition parties have been attacking the Modi government relentlessly, saying that it has failed to rein in inflation.įor starters, inflation, which the famous economist Milton Friedman said is “taxation without legislation” is a steady rise in the price level of goods and commodities over a period. The rate of inflation as measured by the Consumer Price Index has been showing an upward trajectory. Some companies have, instead of increasing the price, reduced the grammage or the quantity of the pack. The prices of many everyday products have gone up by 15-20 per cent during this period. Consumers must have felt the impact of inflation while buying necessities like biscuits, toothpaste, soaps, detergents, and edible oils like sunflower oil, over the past year.
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