Is high inflation the new normal? probes RBI's Gokarn

Reserve Bank Deputy Governor Subir Gokarn today said the central bank is debating whether the prevailing higher inflation is the "new normal." "There is a public debate on whether the prevailing high inflation is the new normal figure for price rise," he told the RBI's 5th Statistical Day celebrations here. However, Gokarn, who oversees inflation management at the Mint Road office, stopped short of revealing whether the monetary authority subscribes to this view or not. But it can be noted that during the annual policy announcement, RBI had made it amply clear that its core focus would be to batten down high inflation even at the cost of sacrificing growth, and had pegged the annual inflation target for this fiscal at 6%. RBI had initially forecast an annual inflation at 5.5% by March 2011, but subsequently was forced to revise it upwards to a high 7% and then to 8% and finally when the fiscal year ended, it was at a much elevated level of 8.98%, which was ironically revised further upwards to 9.68% in June. Such wild variations in its inflation target had invited criticism from many quarters. Noting that changes in consumption patterns are affecting food inflation, Gokarn, however, said statistics has not yet proved empirically that there is a fundamental change in the food demand pattern. Stating that more accurate analysis and decision making are needed to better manage the monetary policy decisions, he said the structural break-ups in the data, such as on inflation, factory output numbers and jobs are posing challenges to this.

Moneycontrol