Deprecated (16384): The ArrayAccess methods will be removed in 4.0.0.Use getParam(), getData() and getQuery() instead. - /home/brlfuser/public_html/src/Controller/ArtileDetailController.php, line: 150
 You can disable deprecation warnings by setting `Error.errorLevel` to `E_ALL & ~E_USER_DEPRECATED` in your config/app.php. [CORE/src/Core/functions.php, line 311]
Code Context


        trigger_error($message, E_USER_DEPRECATED);

    }
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 You can disable deprecation warnings by setting `Error.errorLevel` to `E_ALL & ~E_USER_DEPRECATED` in your config/app.php.'
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deprecationWarning - CORE/src/Core/functions.php, line 311
Cake\Http\ServerRequest::offsetGet() - CORE/src/Http/ServerRequest.php, line 2421
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Cake\Http\Runner::__invoke() - CORE/src/Http/Runner.php, line 65
Cake\Http\Runner::run() - CORE/src/Http/Runner.php, line 51
Cake\Http\Server::run() - CORE/src/Http/Server.php, line 98

Deprecated (16384): The ArrayAccess methods will be removed in 4.0.0.Use getParam(), getData() and getQuery() instead. - /home/brlfuser/public_html/src/Controller/ArtileDetailController.php, line: 151
 You can disable deprecation warnings by setting `Error.errorLevel` to `E_ALL & ~E_USER_DEPRECATED` in your config/app.php. [CORE/src/Core/functions.php, line 311]
Code Context


        trigger_error($message, E_USER_DEPRECATED);

    }
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 You can disable deprecation warnings by setting `Error.errorLevel` to `E_ALL & ~E_USER_DEPRECATED` in your config/app.php.'
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deprecationWarning - CORE/src/Core/functions.php, line 311
Cake\Http\ServerRequest::offsetGet() - CORE/src/Http/ServerRequest.php, line 2421
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Cake\Controller\Controller::invokeAction() - CORE/src/Controller/Controller.php, line 610
Cake\Http\ActionDispatcher::_invoke() - CORE/src/Http/ActionDispatcher.php, line 120
Cake\Http\ActionDispatcher::dispatch() - CORE/src/Http/ActionDispatcher.php, line 94
Cake\Http\BaseApplication::__invoke() - CORE/src/Http/BaseApplication.php, line 235
Cake\Http\Runner::__invoke() - CORE/src/Http/Runner.php, line 65
Cake\Routing\Middleware\RoutingMiddleware::__invoke() - CORE/src/Routing/Middleware/RoutingMiddleware.php, line 162
Cake\Http\Runner::__invoke() - CORE/src/Http/Runner.php, line 65
Cake\Routing\Middleware\AssetMiddleware::__invoke() - CORE/src/Routing/Middleware/AssetMiddleware.php, line 97
Cake\Http\Runner::__invoke() - CORE/src/Http/Runner.php, line 65
Cake\Error\Middleware\ErrorHandlerMiddleware::__invoke() - CORE/src/Error/Middleware/ErrorHandlerMiddleware.php, line 96
Cake\Http\Runner::__invoke() - CORE/src/Http/Runner.php, line 65
Cake\Http\Runner::run() - CORE/src/Http/Runner.php, line 51
Cake\Http\Server::run() - CORE/src/Http/Server.php, line 98

Warning (512): Unable to emit headers. Headers sent in file=/home/brlfuser/public_html/vendor/cakephp/cakephp/src/Error/Debugger.php line=853 [CORE/src/Http/ResponseEmitter.php, line 48]
Code Context
            if (Configure::read('debug')) {

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        LATEST NEWS UPDATES | Don’t blame MSP for inflation -Amartya Lahiri    </title>
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-The Indian Express


Ill-thought-out assertions about the efficacy of monetary policy can unhinge private expectations of inflation.


The Indian Express recently published two articles by Surjit S. Bhalla on the subject of inflation in India (&lsquo;Where monetary policy is irrelevant', September 13..."/>
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-The Indian Express


Ill-thought-out assertions about the efficacy of monetary policy can unhinge private expectations of inflation.


The Indian Express recently published two articles by Surjit S. Bhalla on the subject of inflation in India (&lsquo;Where monetary policy is irrelevant', September 13..." />
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                            <div align="justify">-The Indian Express</div><p align="justify"><em>Ill-thought-out assertions about the efficacy of monetary policy can unhinge private expectations of inflation.</em></p><p align="justify">The Indian Express recently published two articles by Surjit S. Bhalla on the subject of inflation in India (&lsquo;Where monetary policy is irrelevant', September 13 and &lsquo;RBI, we have a problem', September 20). Bhalla's central thesis is that inflation in India is primarily driven by changes in the minimum support prices (MSP) for agricultural goods. He then uses this &quot;fact&quot; to argue that, since monetary policy has no effect on inflation, the Reserve Bank of India (RBI) should lower interest rates to spur growth. However, both his conclusions are problematic.</p><p align="justify">Let us start with the relationship between the MSP and inflation. Given the large share of food in the consumer price index (CPI), no one can or should argue that increases in the MSP have no inflationary consequences. Rather, the key question to ask is what factors cause the MSP itself to move. While the government possibly takes into account a number of factors in determining the MSP, a key input is clearly inflation itself. Rising overall price levels, without corresponding increases in agricultural prices, implies a loss of real purchasing power for the farmer. Increases in the MSP provide the farmer with insulation against such a loss.</p><p align="justify">In as much as the MSP itself responds to current and past inflation, a part of the reported effect of the MSP on inflation is then just the effect of past inflation on current inflation, rather than any independent effect of changes in the MSP on inflation. The MSP may well have an independent effect on inflation, but to determine that one needs to break up MSP inflation into two parts: the part that is induced by current and past inflation and the part that is not. The key test then is to see which of these two components of the MSP has the bigger effect on inflation.</p><p align="justify">Using the CPI (industrial workers) and a weighted MSP index for the period of 1976-2014, I did precisely that exercise. The bottom-line of the results is that, using the part of the MSP due to past inflation to predict inflation does almost as good a job</p><p align="justify">as using the overall MSP. Moreover, when both components of MSP changes are used to predict inflation, the effect of inflation-induced MSP is three times as high as that of non-inflation MSP. The main implication of this is that the biggest predictor of inflation is past inflation. It is clear that past MSP changes due to inflation account for a much larger part of overall CPI inflation than does non-inflation MSP.</p><p align="justify">There is an even bigger kick to these results. If one predicts inflation using both components of the MSP, but using data only till 2008 or earlier (Bhalla uses data till 2004), the only significant predictor of inflation turns out to be inflation-induced MSP. Statistically, non-inflation MSP had no effect on inflation between 1976 and 2008. Put differently, the small effect of non-inflation MSP on inflation is driven entirely by the post-2008 data, which is a very short period of time relative to the overall period of 1976-2014. The upshot of this is twofold: one, fluctuations in CPI inflation in India between 1976 and 2014 are mostly due to fluctuations in past inflation rather than independent MSP changes; two, the little predictive power of non-inflation MSP during this period is entirely due to the short period of the post-2008 data. These facts hardly support Bhalla's rather sweeping conclusion that inflation in India is entirely driven by changes in the MSP. Consequently, the second part of his analytic leap, that the RBI has no influence on inflation, does not follow either.</p><p align="justify">What explains inflation is a good question that this analysis does not answer. But to point at the MSP is to get the relationship a bit backwards. In any economy, different variables constantly interact with each other. Determining causal links between them is, therefore, fraught with complications. Finding a statistical link between two variables does not imply that the two variables are either causally or structurally linked. From a policy perspective, it is imperative to understand the structural link between variables.</p><p align="justify">Monetary policy is a serious and complex business. The ability of a central bank to influence inflation and output depends on a number of factors. The transmission from policy to the economy varies from country to country, fluctuates from time period to time period, is sensitive to the monetary regime and depends crucially on the inflation expectations of the private sector.</p><p align="justify">Intemperate and ill-thought-out assertions about the efficacy of monetary policy can unhinge private expectations of inflation. The RBI has been introducing a new monetary regime over the past year. The changes need time to  work. It may be worth letting the experts do their job, rather than complicating matters by creating unnecessary confusion.</p><p align="justify"><em>The writer is professor of economics, Royal Bank research professor and Johal Chair, University of British Columbia, Canada</em></p>                                                           
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    <br><a href="http://indianexpress.com/article/opinion/columns/dont-blame-msp-for-inflation/99/" class="re" target="_blank">The Indian Express, 7 October, 2014, http://indianexpress.com/article/opinion/columns/dont-blame-msp-for-inflation/99/</a><div class="clear"></div>
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        LATEST NEWS UPDATES | Don’t blame MSP for inflation -Amartya Lahiri    </title>
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-The Indian Express


Ill-thought-out assertions about the efficacy of monetary policy can unhinge private expectations of inflation.


The Indian Express recently published two articles by Surjit S. Bhalla on the subject of inflation in India (&lsquo;Where monetary policy is irrelevant', September 13..."/>
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-The Indian Express


Ill-thought-out assertions about the efficacy of monetary policy can unhinge private expectations of inflation.


The Indian Express recently published two articles by Surjit S. Bhalla on the subject of inflation in India (&lsquo;Where monetary policy is irrelevant', September 13..." />
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    <h1 class="cat-box-title">Don’t blame MSP for inflation -Amartya Lahiri</h1>
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                            <div align="justify">-The Indian Express</div><p align="justify"><em>Ill-thought-out assertions about the efficacy of monetary policy can unhinge private expectations of inflation.</em></p><p align="justify">The Indian Express recently published two articles by Surjit S. Bhalla on the subject of inflation in India (&lsquo;Where monetary policy is irrelevant', September 13 and &lsquo;RBI, we have a problem', September 20). Bhalla's central thesis is that inflation in India is primarily driven by changes in the minimum support prices (MSP) for agricultural goods. He then uses this &quot;fact&quot; to argue that, since monetary policy has no effect on inflation, the Reserve Bank of India (RBI) should lower interest rates to spur growth. However, both his conclusions are problematic.</p><p align="justify">Let us start with the relationship between the MSP and inflation. Given the large share of food in the consumer price index (CPI), no one can or should argue that increases in the MSP have no inflationary consequences. Rather, the key question to ask is what factors cause the MSP itself to move. While the government possibly takes into account a number of factors in determining the MSP, a key input is clearly inflation itself. Rising overall price levels, without corresponding increases in agricultural prices, implies a loss of real purchasing power for the farmer. Increases in the MSP provide the farmer with insulation against such a loss.</p><p align="justify">In as much as the MSP itself responds to current and past inflation, a part of the reported effect of the MSP on inflation is then just the effect of past inflation on current inflation, rather than any independent effect of changes in the MSP on inflation. The MSP may well have an independent effect on inflation, but to determine that one needs to break up MSP inflation into two parts: the part that is induced by current and past inflation and the part that is not. The key test then is to see which of these two components of the MSP has the bigger effect on inflation.</p><p align="justify">Using the CPI (industrial workers) and a weighted MSP index for the period of 1976-2014, I did precisely that exercise. The bottom-line of the results is that, using the part of the MSP due to past inflation to predict inflation does almost as good a job</p><p align="justify">as using the overall MSP. Moreover, when both components of MSP changes are used to predict inflation, the effect of inflation-induced MSP is three times as high as that of non-inflation MSP. The main implication of this is that the biggest predictor of inflation is past inflation. It is clear that past MSP changes due to inflation account for a much larger part of overall CPI inflation than does non-inflation MSP.</p><p align="justify">There is an even bigger kick to these results. If one predicts inflation using both components of the MSP, but using data only till 2008 or earlier (Bhalla uses data till 2004), the only significant predictor of inflation turns out to be inflation-induced MSP. Statistically, non-inflation MSP had no effect on inflation between 1976 and 2008. Put differently, the small effect of non-inflation MSP on inflation is driven entirely by the post-2008 data, which is a very short period of time relative to the overall period of 1976-2014. The upshot of this is twofold: one, fluctuations in CPI inflation in India between 1976 and 2014 are mostly due to fluctuations in past inflation rather than independent MSP changes; two, the little predictive power of non-inflation MSP during this period is entirely due to the short period of the post-2008 data. These facts hardly support Bhalla's rather sweeping conclusion that inflation in India is entirely driven by changes in the MSP. Consequently, the second part of his analytic leap, that the RBI has no influence on inflation, does not follow either.</p><p align="justify">What explains inflation is a good question that this analysis does not answer. But to point at the MSP is to get the relationship a bit backwards. In any economy, different variables constantly interact with each other. Determining causal links between them is, therefore, fraught with complications. Finding a statistical link between two variables does not imply that the two variables are either causally or structurally linked. From a policy perspective, it is imperative to understand the structural link between variables.</p><p align="justify">Monetary policy is a serious and complex business. The ability of a central bank to influence inflation and output depends on a number of factors. The transmission from policy to the economy varies from country to country, fluctuates from time period to time period, is sensitive to the monetary regime and depends crucially on the inflation expectations of the private sector.</p><p align="justify">Intemperate and ill-thought-out assertions about the efficacy of monetary policy can unhinge private expectations of inflation. The RBI has been introducing a new monetary regime over the past year. The changes need time to  work. It may be worth letting the experts do their job, rather than complicating matters by creating unnecessary confusion.</p><p align="justify"><em>The writer is professor of economics, Royal Bank research professor and Johal Chair, University of British Columbia, Canada</em></p>                                                           
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    <br><a href="http://indianexpress.com/article/opinion/columns/dont-blame-msp-for-inflation/99/" class="re" target="_blank">The Indian Express, 7 October, 2014, http://indianexpress.com/article/opinion/columns/dont-blame-msp-for-inflation/99/</a><div class="clear"></div>
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Ill-thought-out assertions about the efficacy of monetary policy can unhinge private expectations of inflation.


The Indian Express recently published two articles by Surjit S. Bhalla on the subject of inflation in India (&lsquo;Where monetary policy is irrelevant', September 13..."/>
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-The Indian Express


Ill-thought-out assertions about the efficacy of monetary policy can unhinge private expectations of inflation.


The Indian Express recently published two articles by Surjit S. Bhalla on the subject of inflation in India (&lsquo;Where monetary policy is irrelevant', September 13..." />
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    <h1 class="cat-box-title">Don’t blame MSP for inflation -Amartya Lahiri</h1>
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                            <div align="justify">-The Indian Express</div><p align="justify"><em>Ill-thought-out assertions about the efficacy of monetary policy can unhinge private expectations of inflation.</em></p><p align="justify">The Indian Express recently published two articles by Surjit S. Bhalla on the subject of inflation in India (&lsquo;Where monetary policy is irrelevant', September 13 and &lsquo;RBI, we have a problem', September 20). Bhalla's central thesis is that inflation in India is primarily driven by changes in the minimum support prices (MSP) for agricultural goods. He then uses this &quot;fact&quot; to argue that, since monetary policy has no effect on inflation, the Reserve Bank of India (RBI) should lower interest rates to spur growth. However, both his conclusions are problematic.</p><p align="justify">Let us start with the relationship between the MSP and inflation. Given the large share of food in the consumer price index (CPI), no one can or should argue that increases in the MSP have no inflationary consequences. Rather, the key question to ask is what factors cause the MSP itself to move. While the government possibly takes into account a number of factors in determining the MSP, a key input is clearly inflation itself. Rising overall price levels, without corresponding increases in agricultural prices, implies a loss of real purchasing power for the farmer. Increases in the MSP provide the farmer with insulation against such a loss.</p><p align="justify">In as much as the MSP itself responds to current and past inflation, a part of the reported effect of the MSP on inflation is then just the effect of past inflation on current inflation, rather than any independent effect of changes in the MSP on inflation. The MSP may well have an independent effect on inflation, but to determine that one needs to break up MSP inflation into two parts: the part that is induced by current and past inflation and the part that is not. The key test then is to see which of these two components of the MSP has the bigger effect on inflation.</p><p align="justify">Using the CPI (industrial workers) and a weighted MSP index for the period of 1976-2014, I did precisely that exercise. The bottom-line of the results is that, using the part of the MSP due to past inflation to predict inflation does almost as good a job</p><p align="justify">as using the overall MSP. Moreover, when both components of MSP changes are used to predict inflation, the effect of inflation-induced MSP is three times as high as that of non-inflation MSP. The main implication of this is that the biggest predictor of inflation is past inflation. It is clear that past MSP changes due to inflation account for a much larger part of overall CPI inflation than does non-inflation MSP.</p><p align="justify">There is an even bigger kick to these results. If one predicts inflation using both components of the MSP, but using data only till 2008 or earlier (Bhalla uses data till 2004), the only significant predictor of inflation turns out to be inflation-induced MSP. Statistically, non-inflation MSP had no effect on inflation between 1976 and 2008. Put differently, the small effect of non-inflation MSP on inflation is driven entirely by the post-2008 data, which is a very short period of time relative to the overall period of 1976-2014. The upshot of this is twofold: one, fluctuations in CPI inflation in India between 1976 and 2014 are mostly due to fluctuations in past inflation rather than independent MSP changes; two, the little predictive power of non-inflation MSP during this period is entirely due to the short period of the post-2008 data. These facts hardly support Bhalla's rather sweeping conclusion that inflation in India is entirely driven by changes in the MSP. Consequently, the second part of his analytic leap, that the RBI has no influence on inflation, does not follow either.</p><p align="justify">What explains inflation is a good question that this analysis does not answer. But to point at the MSP is to get the relationship a bit backwards. In any economy, different variables constantly interact with each other. Determining causal links between them is, therefore, fraught with complications. Finding a statistical link between two variables does not imply that the two variables are either causally or structurally linked. From a policy perspective, it is imperative to understand the structural link between variables.</p><p align="justify">Monetary policy is a serious and complex business. The ability of a central bank to influence inflation and output depends on a number of factors. The transmission from policy to the economy varies from country to country, fluctuates from time period to time period, is sensitive to the monetary regime and depends crucially on the inflation expectations of the private sector.</p><p align="justify">Intemperate and ill-thought-out assertions about the efficacy of monetary policy can unhinge private expectations of inflation. The RBI has been introducing a new monetary regime over the past year. The changes need time to  work. It may be worth letting the experts do their job, rather than complicating matters by creating unnecessary confusion.</p><p align="justify"><em>The writer is professor of economics, Royal Bank research professor and Johal Chair, University of British Columbia, Canada</em></p>                                                           
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    <br><a href="http://indianexpress.com/article/opinion/columns/dont-blame-msp-for-inflation/99/" class="re" target="_blank">The Indian Express, 7 October, 2014, http://indianexpress.com/article/opinion/columns/dont-blame-msp-for-inflation/99/</a><div class="clear"></div>
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Home हिन्दी

Don’t blame MSP for inflation -Amartya Lahiri

Published on Oct 7, 2014   Modified on Oct 7, 2014

-The Indian Express Ill-thought-out assertions about the efficacy of monetary policy can unhinge private expectations of inflation. The Indian Express recently published two articles by Surjit S. Bhalla on the subject of inflation in India (‘Where monetary policy is irrelevant', September 13 and ‘RBI, we have a problem', September 20). Bhalla's central thesis is that inflation in India is primarily driven by changes in the minimum support prices (MSP) for agricultural goods. He then uses this "fact" to argue that, since monetary policy has no effect on inflation, the Reserve Bank of India (RBI) should lower interest rates to spur growth. However, both his conclusions are problematic. Let us start with the relationship between the MSP and inflation. Given the large share of food in the consumer price index (CPI), no one can or should argue that increases in the MSP have no inflationary consequences. Rather, the key question to ask is what factors cause the MSP itself to move. While the government possibly takes into account a number of factors in determining the MSP, a key input is clearly inflation itself. Rising overall price levels, without corresponding increases in agricultural prices, implies a loss of real purchasing power for the farmer. Increases in the MSP provide the farmer with insulation against such a loss. In as much as the MSP itself responds to current and past inflation, a part of the reported effect of the MSP on inflation is then just the effect of past inflation on current inflation, rather than any independent effect of changes in the MSP on inflation. The MSP may well have an independent effect on inflation, but to determine that one needs to break up MSP inflation into two parts: the part that is induced by current and past inflation and the part that is not. The key test then is to see which of these two components of the MSP has the bigger effect on inflation. Using the CPI (industrial workers) and a weighted MSP index for the period of 1976-2014, I did precisely that exercise. The bottom-line of the results is that, using the part of the MSP due to past inflation to predict inflation does almost as good a job as using the overall MSP. Moreover, when both components of MSP changes are used to predict inflation, the effect of inflation-induced MSP is three times as high as that of non-inflation MSP. The main implication of this is that the biggest predictor of inflation is past inflation. It is clear that past MSP changes due to inflation account for a much larger part of overall CPI inflation than does non-inflation MSP. There is an even bigger kick to these results. If one predicts inflation using both components of the MSP, but using data only till 2008 or earlier (Bhalla uses data till 2004), the only significant predictor of inflation turns out to be inflation-induced MSP. Statistically, non-inflation MSP had no effect on inflation between 1976 and 2008. Put differently, the small effect of non-inflation MSP on inflation is driven entirely by the post-2008 data, which is a very short period of time relative to the overall period of 1976-2014. The upshot of this is twofold: one, fluctuations in CPI inflation in India between 1976 and 2014 are mostly due to fluctuations in past inflation rather than independent MSP changes; two, the little predictive power of non-inflation MSP during this period is entirely due to the short period of the post-2008 data. These facts hardly support Bhalla's rather sweeping conclusion that inflation in India is entirely driven by changes in the MSP. Consequently, the second part of his analytic leap, that the RBI has no influence on inflation, does not follow either. What explains inflation is a good question that this analysis does not answer. But to point at the MSP is to get the relationship a bit backwards. In any economy, different variables constantly interact with each other. Determining causal links between them is, therefore, fraught with complications. Finding a statistical link between two variables does not imply that the two variables are either causally or structurally linked. From a policy perspective, it is imperative to understand the structural link between variables. Monetary policy is a serious and complex business. The ability of a central bank to influence inflation and output depends on a number of factors. The transmission from policy to the economy varies from country to country, fluctuates from time period to time period, is sensitive to the monetary regime and depends crucially on the inflation expectations of the private sector. Intemperate and ill-thought-out assertions about the efficacy of monetary policy can unhinge private expectations of inflation. The RBI has been introducing a new monetary regime over the past year. The changes need time to work. It may be worth letting the experts do their job, rather than complicating matters by creating unnecessary confusion. The writer is professor of economics, Royal Bank research professor and Johal Chair, University of British Columbia, Canada

The Indian Express, 7 October, 2014, http://indianexpress.com/article/opinion/columns/dont-blame-msp-for-inflation/99/

Tagged with: minimum support price procurement Inflation food inflation food prices Farmers price rise

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