Prudence prevails: on speculation about inflation

That inflation is a concern for policymakers is reassuring for consumers and savers

The RBI’s officials have in recent months maintained an unwavering focus on emphasising the need to retain the flexible inflation targeting framework. In a December working paper titled ‘Measuring Trend Inflation in India’, the Deputy Governor overseeing monetary policy, Michael Debabrata Patra, and a colleague underscored the importance of ensuring the appropriateness of the inflation target. Observing that there had been a steady decline in trend inflation to a 4.1%-4.3% band since 2014, they said a target far lower than the trend ran the risk of imparting a ‘deflationary bias’ that would dampen economic momentum, while a goal much above the trend could engender expansionary monetary conditions that would likely lead to inflation shocks. And in February, the RBI’s researchers authoring its Report on Currency and Finance — themed ‘Reviewing the Monetary Policy Framework’ — made clear that the framework had served the economy well, attested by a decline in inflation volatility and more credible anchoring of inflation expectations. That the government’s economic officials have heeded these calls will certainly reassure investors and savers that inflation remains a central concern for all policymakers.

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