Background Information

Inflation is the increase in the prices of goods and services over time, causing a decrease in the amount of money spent on them. High food prices, such as vegetables, grains, and fruits, directly affect the amount of money people spend on food, increasing the overall cost of living. This can lead to less money for other things, higher living costs, and uncertainty for businesses, which can slow down job creation and economic growth.

The Reserve Bank of India (RBI) cannot directly reduce prices like in a grocery store, but it controls inflation through interest rates. Keeping interest rates high can make loans more expensive, encouraging borrowing and spending less, which can lower inflation. Lowering interest rates can make borrowing cheaper, encouraging spending and investment, which can help the economy grow. However, if done when prices are already high, it could worsen inflation.

Currently, the RBI is not changing interest rates to prevent inflation from worsening and to maintain economic stability by ensuring prices don’t rise too quickly, especially as high food prices are already pushing inflation up.

Article Explanation

The article talks about the decision made by the Reserve Bank of India’s (RBI) Monetary Policy Committee (MPC) to keep interest rates the same for the ninth time in a row. This decision is part of the RBI’s effort to control inflation, which has been higher than its target of 4% for almost five years. High inflation, especially rising food prices, is starting to affect how confident people feel about the economy.

RBI Governor Shaktikanta Das explained that they can’t afford to relax because high food prices are still a big problem. These prices have not only slowed down the reduction of inflation in recent months but have also continued to rise. For example, the prices of tomatoes, onions, and potatoes have increased significantly in just one month.

Food prices are particularly important because they make up a large portion (about 46%) of the overall cost of living (as measured by the Consumer Price Index or CPI). High food prices impact not only the official inflation rate but also the budgets of households. The Governor subtly criticized an idea that was suggested in the Economic Survey, which proposed that food prices should not be included in the inflation calculation. He implied that removing food prices from this calculation would not make sense right now.

The MPC decided by a vote of 4 to 2 to keep interest rates unchanged and to continue focusing on controlling inflation. They also raised their expectations for inflation in the upcoming months, predicting that it will be higher than they previously thought. For example, they now expect inflation to be 4.4% in the July-September quarter, up from their earlier estimate of 3.8%.

The article also mentions that vegetable prices have been a big factor in the recent rise in inflation and are expected to keep pushing prices up through the festive season until early November. The MPC also warned that high food prices could affect other parts of the economy, including the cost of non-food items like mobile services. Finally, the policymakers emphasized that without stable prices, economic growth might be weak or unstable.

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The Editorial Page of The Hindu is an essential reading for all the students aspiring for UPSC, SSC, PCS, Judiciary etc or any other competitive government exams.

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