Inflation holds the expansion...

Article;
Misreading inflation.

Comment;

The cost of living has increased for everybody due to inflation in food and fuel ( transport) poor and rich alike... the general price-level will increase... everybody will demand more income... but in a supply constrained country like INDIA this increase in demand for income will result in more inflation... Therefore the RBI needs to curb demand through raising interest rate which will put breaks on labor demand and income... industry  will demand less and will  consume less labor... less demand will be created...  In the latest inflation-data we have seen a fall in the inflation indexes, WPI (6.16%) and CPI (9.87%) due to two successive rate hikes by our RBI Governor just after he took the office... therefore expecting a pause in the January 28th review...  but food inflation, i think, will resist to come down from the current levels, and has even shown an increase, will continue to remain a threat to growth because supply side improvements are not in sight in the near future. Moreover, the overall CPI inflation has remained elevated near 9-10% since 2004 and is sticky around that level, again, due to supply side constraints. The RBI now started seeing inflation and interest rate in the CPI's perspective... even it helped the government in bringing inflation-indexed-bonds indexed with the CPI… the RBI is more serious about the CPI now… Therefore sticky inflation will go either by supply side improvement or by a very-high interest rate like under Paul Volcker in the US… I wish the Government move quick and fast to address supply side bottlenecks or the country will go through a prolonged slowdown due to high interest rates. The economy can avert a prolonged downturn by reducing interest rates if inflation comes close to the Central Banks target 5-6%... The economy has two options either we reduce supply side bottle-necks or increase interest rates to curb income, demand and prices… the former looks less painful… Both, the RBI and the government has to decide… India has seen a boom cycle between 2004 and 2012 but high inflation and high interest rate ended that cycle… With a responsible central bank we always do not need to burst a bubble… INDIA could avert the down-turn if inflation was not a problem, however, even the US experienced inflation around 6% before the economy crashed in 2008, but it was largely due to oil prices.  And, INDIA is experiencing high food prices… We need to increase the supply of food… Nevertheless fuel is scarce and may pose problems for growth in any country without possible alternate sources of energy…