It is often pointed out that a bit of inflation is good for the economy, as it imparts a buoyancy to government revenues and helps companies realise better prices. Profits increaseinitially as inventories bought at lower price levels are sold at high prices. Wages react with a lag, giving an opportunity for increasing profits and improving cash flow. These are the reasons why businessmen are often ambivalent about a moderate dose of inflation. In terms of the old Phillips curve, there is a clear trade-off between unemployment and inflation. All this, however, depends very much on the nature of the inflationary pressures. Unfortunately, we have the wrong kind of inflation. The main push behind the current rise in prices is not demand-pull, but cost-push. Prices of primary food articles have risen by 9.72 per cent this fiscal, while the price of vegetables have gone up by a hefty 55 per cent. The prices of potatoes, onions and ginger have flared up in recent weeks. In sharp contrast, the increase in prices of manufactured articles has been only 1.74 per cent this year. Apart from vegetables, the other articles where inflation has been high are high speed diesel oil and electricity. Themain reason for the rise in prices is the shortage in agricultural commodities as a result of the negative growth in agricultural production during 1997-98. Add to that the depreciation in the value of the rupee, and the increase in duties imposed by the budget, and the situation is tailor-made for high cost-push inflation. This kind of inflation merely pushes up costs throughout the economy, costs which cannot be passed on by businesses in the backdrop of weak demand. That is a surefire recipe for stagflation.