US inflation and its impact on India
Over the last few days, rising prices have cornered a lot of attention, both globally and in India. On Wednesday, the United States’ Labor Department reported that retail inflation had spiked to 6.2 per cent in October.
On Friday, India’s National Statistical Office (NSO) data showed that retail inflation rose to 4.5 per cent for the same month. A look at why this is a concern: When prices increase globally, it will lead to higher imported inflation.
\In other words, everything that India and Indians import will become costlier. High inflation in the advanced economies, especially the US, will likely force their central banks to abandon their loose monetary policy. A tight monetary policy involves increasing interest rates to constrain borrowing and to stimulate savings.
The RBI will have to align its monetary policy at home by raising interest rates domestically. That, in turn, may further raise inflation because the production costs would go up.
Just a couple of months back India’s Member of Parliament and Former Finance Minister, P. Chidambaram attacked the Modi government over inflation and rising fuel prices and demanded immediate relief by reducing taxes on petroleum products and import duty on various items.