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RBI flags risk of higher inflation
Why in the news ?
- The Reserve Bank of India (RBI) on 29 Aug. reiterated concerns over rising inflationary pressures this fiscal year due to global and domestic pressures.
More in the news
- RBI pointed out rising global commodity prices, especially of crude oil, and recent global financial market developments are firming up input cost pressures.
- As per the RBI report, headline inflation which averaged 4.8% during Q1:2018-19, is likely to face upside risks over the rest of the year from a number of sources.
- Inflation concerns have led RBI to raise the key policy rate, or the repo rate, twice in the last two monetary policy meetings by 25 basis points each, to 6.5%.
- On growth, RBI said incoming data pointed to favourable conditions for an acceleration of activity in the Indian economy.
- RBI said the Indian economy is set to step up its growth trajectory, adding that the infrastructure holds the key to unleashing faster growth.
- Progress in Structural reforms that include resolution of banking and corporate financial stress, taxation, agriculture, liberalisation of the economy’s external interface pace will further the quality of growth.
Concept
- Inflation is defined as a sustained increase in the general level of prices for goods and services in a county
- Demand-Pull Inflation – Inflation is caused by the overall increase in demand for goods and services, which bids up their prices.
- This theory can be summarized as "too much money chasing too few goods".
- Cost-Push Inflation – Inflation is caused when companies' costs of production go up. When this happens, they need to increase prices to maintain their profit margins.
- Increased costs can include things such as wages, taxes, or increased costs of natural resources or imports.
Source
The Hindu.