ISSN (Print) - 0012-9976 | ISSN (Online) - 2349-8846
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What Drives Inflation in India: Overheating or Input Costs?

This study takes a closer look at some of the drivers of inflation in manufacturing prices in India. It indicates that "overheating", which has recently acquired policy focus, drives inflation in the short run, whereas international materials and energy prices drive inflation over the short as well as the long run. The study implies that restrictive monetary policy might be of only limited relevance in controlling non-food inflation. Public policy aimed at minimising the impact of input cost shocks might work better in the long run. In the meanwhile, the restrictive monetary policy followed by the Reserve Bank of India might worsen the downturn that has begun in January 2010.

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