Wednesday, January 22, 2014

Inflation targeting...


Article;
Retail inflation as new policy benchmark a good-idea.

Comment;
We should thank the central bank that it has not chosen 0% inflation or complete price-stability as the objective. The central bank would target 4% +/- 2% CPI... much liberal... not very hawkish…It (the central bank) has tried to make the monetary policy more predictable... The RBI has made a complete time-table for years to bring inflation close to the target... a very good move... but let us see how it is accomplished... If that is done by increasing interest rates then we will go through a downward spiral, falling demand and prices until inflation comes close to target 2-6%... or it can be done by fostering supply, especially food items... The Indian story is more about inflation and supply side bottlenecks and as far as demand is concerned the government has pumped too much money through loose fiscal policy... which gave wages and income a boost… demand is outpacing supply due to bad policy in retailing even when food and fuel prices globally are much calm... Bad Government policy is responsible for high food inflation…

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