Explain inflation with its basic causes after COVID-019. (Marks-05)
Answers
India’s economy has been facing stubbornly high inflation for almost one year now
Food inflation has been the main reason behind the rapid rise in inflation. Core inflation has been higher than expected as well, caused by disrupted supply chains related to local lockdowns
Inflation is expected to come down on the back of lower food prices, but we believe the downward inflation trajectory will be short-lived. A combination of factors, such as higher oil prices, global inflation, and a closing output gap will result in higher inflationary pressure by the beginning of 2021
Given the explicit inflation mandate of the Reserve Bank of India and the importance of the central bank’s credibility, the Monetary Policy Committee will likely remain reluctant to cut its policy rates
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