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Finshots Daily
How to tackle stubborn inflation
Aug 23, 2024
Dive into innovative strategies that the Reserve Bank of India and the government could adopt to tackle stubborn inflation. Discover how focusing on food prices might be key to stabilizing the economy. The discussion also highlights the importance of modernizing the Consumer Price Index to better reflect today’s household spending. Learn about potential solutions in an engaging and insightful manner!
07:14
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Quick takeaways
- The Reserve Bank of India faces challenges in achieving its 4% inflation target due to food prices and supply chain issues.
- Updating the Consumer Price Index methodology could provide a clearer understanding of inflation dynamics, aiding in more effective monetary policy.
Deep dives
Impact of Food Prices on Inflation Control
Inflation poses a significant challenge for the Reserve Bank of India (RBI) and the government, as food prices have emerged as a major contributor to rising costs. The RBI has been targeting a 4% inflation rate while managing two components: core inflation, which excludes food and fuel, and non-core inflation, which includes them. Despite core inflation dropping to 4.3% in FY24, the overarching goal remains elusive due to food prices driven by supply chain disruptions and external factors like erratic weather. This situation complicates the RBI's ability to cut interest rates, as lowering rates could exacerbate food price inflation, trapping the economy in a repetitive cycle of economic pressure and rising costs.
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