Tolerating high inflation to prove risky for India – leading macroeconomic influencers
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Tolerating high inflation is risky for India – macroeconomic influencers

06 Oct 2021

High inflation should become a priority for Indian policymakers.

Tolerating high inflation is risky for India – macroeconomic influencers
Credit: xtock/Shutterstock.com.

Some economists believe that it is time for India to shift gears and support its growth with more fiscal than monetary push.

Sonal Varma

Sonal Varma, managing director and chief economist for Nomura Holdings, retweeted an article on the Reserve Bank of India (RBI) having tolerated higher inflation since the start of the Covid-19 health crisis for good reasons, but tolerating for too long could lead to other risks. For instance, if households and businesses started assuming this to be the new normal, their expectations may rise, resulting in a self-fulfilling wage spiral.

Varma believes that Indian policymakers, like others, have taken a similar stance of ignoring rising inflation and prioritising growth throughout the pandemic. However, although most central banks view high inflation to be transitory, it is time for India to shift gears and be worried about it.

Yannis Koutsomitis

Yannis Koutsomitis, a European affairs analyst and managing editor at KappaNews, shared an article on the European Commission (EC) launching European Union (EU) budget rules review on 19 October 2021, to evaluate the economic impact of the Covid-19 health crisis on the European economy and how to change the rules that reinforce the euro currency.

Called the Stability and Growth Pact, the EU budget rules confines government borrowings to protect the value of the euro, now being used by 19 EU nations. They are, however, currently deferred until 2023 in an effort to allow governments the flexibility to tackle the coronavirus pandemic.

Policymakers are of the opinion that a review of the rules has become necessary as they have grown increasingly complex after three revisions since the euro was set up in 1999. EC Commissioner Paolo Gentiloni stated that one of the issues that the review will most certainly address is how to tackle the huge public debts accumulated during the Covid-19 crisis.

David Wessel

David Wessel, director of the Hutchins Center on Fiscal and Monetary Policy at the Brookings Institution and a contributing correspondent to The Wall Street Journal, shared an article on the US Treasury Secretary Janet Yellen having declined to comment on supporting the re-appointment of Federal Reserve Chair Jerome Powell for a second term, stating that it was up to President Joe Biden to take the decision. She also stated that she trusted the US central bank in making the right decisions to guide the economy out of the Covid-induced recession.

The reappointment of Fed Chair has become even more complicated in the recent weeks, with two of Fed’s regional reserve bank presidents reportedly dismissed on the grounds of active investing in 2020, as the agency prepared to fight the coronavirus pandemic. However, Powell launched a sweeping ethics review of investments made by top Fed officials.

Yellen also stated that she did not doubt the decisions taken by the Fed to protect the economy against the pandemic, especially amid widespread criticism against Fed officials conforming to the transitory idea of high inflation. She maintains that the Covid-19 impact has been hard and unusual, with the US economy approximately six million jobs short of where it was prior to the pandemic, implying rising unemployment. Additionally, many businesses are finding it difficult to hire workers and are experiencing a shortage of staff.