PremiumInflation is the unkindest cut of all, for it acts as a regressive tax. It mostly hurts those who have the least to get by. As it also has its set of gainers, it results in reverse redistribution—from the poor to the rich. And since that’s untenable, we must treat it with the urgency it deserves.
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Inflation is a global worry. In the US, prices last month were 8.6% above their year-ago level, an upshoot so sharp that it will probably take a policy-induced recession to get it back down to its target of an average 2%. India’s data for May, released on Monday, puts our retail inflation at 7.04%, down modestly from April’s reading of almost 7.8%. Given our tolerance limit of 6%, it is less disastrous an overshoot than America’s, but that should not serve as a fig leaf for central bank failure.
Talking about a supply shock from overseas as the sole cause of the crisis would be to wilfully ignore the inflationary impulses brought about by an unprecedented monetary and fiscal expansion in response to the covid crisis. As an extended era of cheap oil had no guarantee to begin with, the Ukraine war can at most be blamed for bringing existent risks to a head. Broadly, price stability is a function of the priority we give it. Remember, inflation is the unkindest cut of all, for it acts as a regressive tax. It mostly hurts those who have the least to get by. As it also has its set of gainers, it results in reverse redistribution—from the poor to the rich. And since that’s untenable, we must treat it with the urgency it deserves.