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Resource centre on India's rural distress
 
 

Economy Facing Stagflation: Need to Improve Supplies and Keep up Demand -Arun Kumar

-Newsclick.in

The economy faces stagflation. The steps announced by the government are a start. More needs to be done to eliminate supply bottlenecks without curtailing demand.

The Government, worried about the inflation rapidly inching up month after month, has finally become pro-active. The steps announced are designed to lower the prices of basics like diesel, steel, cement and plastics. Wholesale Price Index (‘WPI’) has risen at more than ten per cent for more than a year, and in April 2022, it was at 15.08 per cent – a level not seen in more than a decade. Consumer Price Index (‘CPI’) has risen 7.8 per cent, well above the Reserve Bank of India (‘RBI’)’s target of four per cent plus minus two per cent for the fourth consecutive month.

ACCELERATING INFLATION

Inflation is high whichever measure we take. The CPI reflects the impact of inflation on the citizen’s budget. If it is higher than the increase in incomes, wages and salaries of people, then their standard of living declines. The WPI is what the producers take into account in their cost of production. That in turn determines the price of their product and the profits they earn. Rising WPI sooner or later translates to higher consumer prices, which have been moderated of late by the decline in the wage bill and interest costs. That is why the CPI has lagged considerably behind the WPI for some time.

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