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What is Responsible for India’s Sharp Disinflation?
Author: Sajjid Chinoy, Pankaj Kumar, and Ms. Prachi Mishra
Series:
IMF Working Papers
Volume/Issue:
Volume 2016: Issue 166
Language:
English
Publication Date:
08 Aug 2016
DOI:
https://doi.org/10.5089/9781475523935.001
ISBN:
9781475523935
ISSN:
1018-5941
Pages:
37
Keywords:
WP; CPI inflation; inflation expectation; Dis-inflation dynamics; food inflation; inflation process; inflation; India; world food price growth; inflation lag; Food prices; Disinflation; Wages; Price indexes; Global
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IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.
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We analyze the dramatic decline in India’s inflation over the last two years using an augmented Phillips Curve approach and quantify the role of different factors. Our results suggest that, contrary to popular perception, the direct role of lower oil prices in India’s disinflation was relatively modest given the limited pass-through into domestic prices. Instead, we find that inflation is a highly persistent process in India, reflecting very adaptive expectations and the backward looking nature of wage and support price-setting. As a consequence, we find that a moderation of expectations, both backward and forward, and a rationalization of Minimum Support Prices (MSPs), explain the bulk of the disinflation over the last two years.
Cover IMF Working Papers
IMF Working Papers
ISSN:
1018-5941
Publisher:
International Monetary Fund