The “threat of stagflation is turning into a baseline scenario,” sources told DailyExpertNews, adding that there are “no tools against stagflation worldwide”.
A day before retail inflation in April, sources told DailyExpertNews that the Reserve Bank of India’s inflation forecast was likely to be revised higher in the June policy review.
Last week, after an emergency meeting, the RBI raised its key interest rates to combat runaway inflation, even as they acknowledged that the loss of economic output from the pandemic would take India many years to recover.
Until last month, the central bank’s reluctance to shift its focus on inflation was that the nascent economic recovery from the COVID-19-led restrictions on business activity needed more support.
While the war between Russia and Ukraine has accentuated those growth concerns, at the same time it has sparked runaway inflation worldwide, disrupting supply chains already disrupted by the coronavirus-led lockdowns.
That points to a technical definition of stagflation – high inflation and slowing economic growth at the same time.
A Reuters report shows Morgan Stanley has lowered its forecasts for India’s economic growth over the next two fiscal years, saying a global slowdown, rising oil prices and sluggish domestic demand would negatively impact the third country’s economy. largest economy in Asia.
On Wednesday, people familiar with the matter told DailyExpertNews that the threat of stagflation also looms large, along with inflation.
“In the words of the Egyptian-American economist, ‘the threat of stagflation is turning into a base case globally,'” the sources said.
And they added that there are “no tools against stagflation worldwide.”
Still, the sources said “the goal is to get rid of all pandemic-led policies.”
RBI Governor Shaktikanta Das went to great lengths last week to justify that the off-bike hike was a reversal of the emergency rate cut as a pandemic bailout.
But rising inflation is a major concern for the RBI right now.
A Reuters survey of economists in the April retail price report showed that inflation — based on the consumer price index — has accelerated further to 7.5 percent from a year ago, compared to a 17-month high in March. 6.95 percent in March.
And if the Reuters consensus of 7.5 percent is met, it would mark the fourth straight month of inflation since October 2020 and well above the RBI’s upper bound of its 2-6 percent target.
Forecasts in that poll of 45 economists for the data, due to be released at 1200 GMT on May 12, ranged between 7.0 percent and 7.85 percent, underscoring expectations for a higher figure as none of the economists set a lower number than Inflation in March.
General expectations suggest the April report could be the peak, but inflation is likely to remain elevated.
Food inflation, which accounts for nearly half of the consumer price index package, has been at its highest level for several months due to higher prices for vegetables and cooking oil and is likely to remain at that level.