Column : Inflation targeting hardly works

First, is the perception correct at all? The accompanying table shows the growth-inflation profiles of some EMs, a crude measure of Phillips Curve trade-offs. The intent is to highlight the level of inflation relative to growth, rather than just the absolute levels of inflation. Two patterns emerge. One, adjusting for growth, India’s inflation does not look completely out of line compared to at least some of the other EMs in terms of differentials between CPI inflation and GDP growth. Two, it does seem that the selected countries are clustered into two broad groups with high and low inflation differentials. Might there be some underlying macroeconomic reason for this behaviour? Note that the three countries with the higher inflation differentials were also those with the worst performing domestic currencies (see graph), indicative of large current account deficits, which will affect the extent of pass-throughs of global commodity prices.

For the moment, set aside domestic factors (aggregate demand, capacity utilisation levels, etc), even measurement issues (i.e., our own year-on-year change versus

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