Persistently elevated cost of living conditions can engender wage-price spirals according to RBI

According to Shaktikanta Das, the RBI Governor, though inflation has moderated and plateaued since its recent peak of April 2022, it remains unacceptably and uncomfortably high. Minutes of the last Monetary Policy Committee Meeting noted that the high level of inflation continues to be broad-based with 13 out of 23 CPI sub-groups/groups, comprising close to 60 per cent of the CPI basket, registering more than 6 per cent inflation in June 2022. Going forward, though there are early indications that inflation might have peaked in April, significant uncertainties remain on account of adverse global spillovers coming from simmering geopolitical tensions, volatile global commodity prices and financial markets. While the let-up in global food and industrial metals prices should lower imported inflation, the appreciation of the US dollar could offset some of the gains. Persistently elevated cost of living conditions can engender wage-price spirals, especially as firms regain pricing power.

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