• Recommendation holds significance as it is reported that the government is considering recommending a looser inflation target for RBI, allowing it to focus more on economic growth despite price pressures.
• Inflation is good when it is mild. When prices are going up, people want to buy now rather than pay more later. This increases demand in the short term. As a result, stores sell more and factories produce more now.
• A steady decline in trend inflation to 4.1- 4.3% since 2014.
• Trend inflation provides a centering point for the evaluation of inflation forecasts over various time periods.
• It serves the crucial purpose of a consistency check on the setting of inflation targets.
• Paper notes that estimating trend inflation with regular updates is important for the formulation of monetary policy, irrespective of the country setting.
• Decline in the inflation persistence, indicating that households and businesses in India are becoming more forward-looking than before as credibility associated with monetary policy increases.
• Persistance is usually seen as referring to the duration of shocks hitting inflation.
Mains Paper 3: Economy
Prelims level: Inflation