State Of The Economy: 'Stagflation' Worries?

Retail inflation in December 2019 rose by 7.35 per cent, the most since July 2014. It's driven mostly by higher prices of vegetables. Analysts believe this poses not just a big economic challenge to the government led by Prime Minister Narendra Modi, but also a political one. Vegetable prices have gone up by 60 per cent since a year ago. Now, is the rise in inflation a transitory phase? Or there is more to worry about? The GDP growth has already been projected to come down this financial year to 5 per cent; it was 6.8 per cent last year. So when one combines high prices with slow growth, it leads to what Dr Manmohan Singh warned about - stagflation. The big fear is that since the inflation numbers exceed the comfort level that the central bank has, of 4 per cent ( plus or mins 2 percentage points), then it will probably not cut interest rates to boost economic growth. In turn, that could dampen economic sentiment further.