Disinflation in India | UPSC Notes

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Disinflation in India | UPSC Notes

The Reserve Bank of India (RBI) recently said that India’s process of lowering inflation is likely to be slow and take a long time, with the 4% inflation goal likely not being reached until the middle of the next decade.

What does “deflation” mean?

About: Disinflation is when the rate of inflation slows down. This means that prices are still going up, but not as quickly as before.

Disinflation is not the same as deflation, which is a sustained drop in the general price level. A healthy amount of disinflation is needed because it keeps the economy from getting too hot.

Disinflation can be caused by a number of things, such as a slowdown in economic growth or demand, a tighter monetary policy, or higher interest rates.

  • A tighter budget or less money spent by the government. • A higher exchange rate.
    What are inflation and deflation?
    About: Inflation is when the prices of most everyday goods and services, like food, clothes, housing, entertainment, transportation, consumer staples, etc., go up.
  • Inflation looks at how the average price of a group of goods and services changes over time.
  • “Deflation” is a rare drop in the price index of this group of goods, which is the opposite of “inflation.”

o Inflation is a measure of how much less money can buy with one unit of a country’s currency. This is shown as a number.

Evaluation: In India, WPI (market Price Index) and CPI (Consumer Price Index), which measure changes in prices at the market and retail levels, are the most important ways to measure inflation.
CPI data is used by the Monetary Policy Committee (MPC) to control inflation. The MPC, which is led by the RBI governor, is in charge of bringing inflation down to 4% over the medium term and keeping it between 2% and 6% over the long term.

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What new information about inflation has the RBI given recently?

The Current State of Inflation:

o India’s annual retail inflation fell from 4.7% in April 2023 to 4.25 percent in May 2023. But experts think that inflation will stay high in the coming months, which will make it hard to reach the 4% goal.

The Reserve Bank of India (RBI) said that inflation is expected to be 5.1% in FY 23-24, which is lower than past estimates but still above the target. This shows that inflationary forces need to be stopped and policy changes made to keep the economy as a whole stable.