Editorial: Inflation worries

The govt must act to quickly rein in the runaway inflation before it inflicts further distress on people and erodes the demand, making an equitable recovery even more difficult

The soaring inflation is adding to the woes of the pandemic-battered economy that is grappling with a slower-than-expected recovery. The Consumer Price Index (CPI), India’s benchmark inflation measure, grew at 6.26% in June 2021. This is the second consecutive month that the CPI has landed above the Reserve Bank of India (RBI)’s upper tolerance limit of 6%. The Wholesale Price Index (WPI) grew at 12.07% in June, the third consecutive month of double-digit wholesale inflation. With the fuel prices being at a record high, there is an enormous squeeze on the purchasing power and demand. A sustained spike in food inflation could have a damaging effect on the poor as higher food prices would put pressure on earnings, which are already low, and decrease household savings at a time when there is widespread economic pain in the country. The government must act to quickly rein in the runaway inflation before it inflicts further distress on people and erodes the demand, making an equitable recovery even more difficult. The rising diesel prices will have an adverse impact on farm incomes. The price rise is coming at a time when employment and livelihoods have collapsed following the devastating impact of the pandemic. Many people who lost their jobs during the pandemic, and even before because of the economic slowdown, have not been able to find new employment while the incomes of most self-employed people are a fraction of their previous levels. There has been a significant increase in poverty and hunger.

With declining household incomes and savings, there is a real threat of a future consumption slowdown in the economy, which could lead to another spell of economic slowdown. The spike in consumer food price and retail in the past few months has coincided with a record contraction of the Indian economy and a trend of unemployment and depressed rural wages. Even before the pandemic, India’s economy was slowing down and none of the four engines –– consumption, investment, exports, and public expenditure –– that drive economic growth were firing strongly. The government must loosen its purse strings and spend enough to help tens of millions of poor and low-income households. And, in doing so, it should not worry too much about the fiscal deficit because saving lives and livelihoods must be the top priority now. The International Monetary Fund (IMF) too has rooted for the nations to continue to spend to support healthcare systems and households until Covid-19 spread is controlled globally. The recent stimulus package, unveiled by the Centre, fell short of expectations because much of it was in terms of policy reform measures spread over five years while some more are to do with the procedural changes in the existing schemes.

---

---

Now you can get handpicked stories from Telangana Today on Telegram everyday. Click the link to subscribe.

Click to follow Telangana Today Facebook page and Twitter .

---