September 04, 2016

The Roots of Inflation in India

In this Mint article, Vivek Dehejia, Senior Resident Fellow at IDFC Institute, analyzes the roots of inflation in India, relevant to the inflation targeting regime now in place.


"Controversies around whether inflation targeting makes sense as a policy choice, for India in particular, are not new. Briefly, proponents argue that as inflation targeting is the gold standard for advanced economies, it makes sense that India, too, should adopt it. Critics point to the failure of inflation-targeting central banks to pick up on, and defuse, destabilizing bubbles in asset prices that helped precipitate the 2008 global financial crisis...  A very recent research paper released by the International Monetary Fund is only the newest in a spate of research trying to understand the roots of inflation, and, in particular inflation dynamics, in India. The paper attempts to understand the sharp disinflation which set in during the past three years following a period of high and persistent inflation from 2006 to 2013. The disinflation starting in late 2013 occurred at a time of many changes in both the global and the Indian economy and polity, making it difficult to disentangle and assign relative importance to the various possible causes."


Read the full article here.

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