Letters to the editor: Inflation and policy

Updated: Dec 21 2013, 05:41am hrs
Apropos of the column Time to hold nerve, and rates (FE, December 18), the gap of 3% between WPI and CPI has been there since the new series of CPI has come. CPI, during the last 2-3 years, has been above 9%. The hike in interest rate by RBI almost about three years ago was on account of inflation going up. However, it cooled down in between and RBI responded very quickly to cut down interest rates. The cumulative factors are responsible for inflation going up. CPI, which has been considered in the decisions on interest rates, has not come down below 9% in the last three years. This was the period when global conditions were also not favourable. The impact of high inflation is seen on wages, which had to go up in consonance with the rate of inflation. There is very little chance that a wage-earner whose wages are inflation-indexed would think of cutting down expenditure. But in the unorganised sector, there are workers who are paid nominal wages and are not protected from inflation. As inflation becomes generalised, no monetary authority can afford to reduce interest rates in this situation.

RK Arya, Faridabad