Bad news in good times? Economists are not sure. Inflation hit a two-year high of 6.58 per cent in data released on Friday, but coming on top of a roaring 9.2 per cent growth in gross domestic product (GDP), there was introspection and concern among economy-watchers.
Food articles, of concern to the poorer sections and a coalition facing elections, caused the inflation rate based on wholesale prices to hit its highest level since December 11, 2004, when it was at 6.73 per cent. It was at 6.11 per cent in the previous week and 4.04 per cent a year earlier.
The big question is: will the latest spike in inflation affect the economy's growth momentum?
“There is no defined range for all countries on the correlation between inflation and economic growth. However, the current rate of inflation has come as a bit of a surprise, because the target was between 5 and 5.5 per cent," former governor of Reserve Bank of India Bimal Jalan told the Hindustan Times.
Saumitra Chaudhuri, Economic Advisor and Research Coordinator of ICRA, however, said that the rise in the rate of inflation, should not be seen as a cause for alarm. “It is for a week or two and not for a period,” he said.
Jayati Ghosh, an economist with the Jawaharlal Nehru University, said inflation need not be a price to pay for growth. “There is no set norm for justifying a range of inflation with the GDP growth rate.” She added that the rise in inflation reflects “economic mismanagement”.