Why inflation is rising in spite of lower money supply?
The country’s inflation rate jumped to 4.78 per cent in November driven by costlier food items, increasing pressure on the Reserve Bank of India (RBI) to hike interest rates to suck out liquidity from the system to control prices. The drought-related surge in food prices has been the key driver for inflation over the last few months. Food inflation rate stood at 19.04 per cent for the week ending November 28. More worryingly, prices of non-food items such as textiles, paper products, metals and machinery are also on the rise. The economic downturn had forced the RBI to cut interest rates to record lows but economists say that the surge in inflation could prompt central bank to shift to tighten the monetary policy!!
