Thinking clearly about inflation

While govt's measured response to inflation is to be admired, its action on food-price inflation cannot escape criticism.

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The subject of inflation, which occupied the media and the politicians in 2008 until the global financial crisis put an abrupt end to it, has returned to the centre stage of the policy debate. The big difference, however, is that this time around the government has been much calmer.

Previously, the increase in the year-on-year wholesale price index (WPI) to 8% in April 2008 from 4.5% in January 2008 had the government reach out to every conceivable weapon in its arsenal regardless of its suitability for combating inflation. The government’s actions included cuts in import duties, bans on exports, appreciation of the rupee, rise in the cash reserve ratio, suspension of the futures trade, cuts in excise duties, export taxes and threats of price controls.