The inflation devil is back and at the wrong time. The 7.35% rise in consumer price inflation in December is a shocker even to those who were prepared for an elevated level of inflation in the backdrop of the rise in prices of food commodities in general, and the astronomical rise in the price of onions, in particular. The disturbing December print has set off fears over whether India is entering a period of slow growth accompanied by high inflation, in other words, stagflation. Such fears have to be weighed against a few facts. First, the headline inflation number is driven mainly by food inflation at 14.12% — it was 10.01% in November and -2.65% in December 2018. While onion was the prime villain pushing up price inflation in vegetables to a huge 60.50% compared to December 2018, prices of other food items such as meat and fish (up 9.57%), milk (up 4.22%), eggs (up 8.79%) and some pulses were also on the upswing. These are a largely seasonal rise in prices and are driven mainly by supply-side factors and the prices will reverse once the supply shortfall is addressed. Second, core inflation, which is the one that should be of concern, has only inched up marginally from 3.5% in November to 3.7% in December. That said, it would be worrisome indeed if core inflation were to shoot up or if food inflation does not cool down in the next couple of months. The sharp jump in the CPI has queered the pitch for the Reserve Bank of India’s monetary policy review in February. The central bank stood pat on rates in the December policy precisely due to fears of inflation and had even revised upwards its inflation projection for the second half of the fiscal to 4.7-5.1%. The December print is ENGLISH LANGUAGE 11 Adda247 Publications For More Study Material Visit: adda247.com way above the monetary policy committee’s (MPC) mandated limit of 6% (4% plus 2%) which means that a rate cut is pretty much off the table for now. Yet, with growth sagging, there is pressure on the central bank to cut rates at least one more time to stimulate growth. It would be interesting to watch the deliberations of the MPC in February. While the market may be prepared to accept a standstill policy for now, any change in the RBI’s stance from accommodative to neutral may not go down well. A lot would also depend on the fiscal arithmetic that would emerge from the budget to be presented on February 1. Meanwhile, the government should engage all levers to address the supply-side issues that are behind the rise in food inflation. A calming down of food prices will help the bank do what the government and markets want — lower rates.

Which of the following scenarios best describes **stagflation** as discussed in the passage?

Question

The inflation devil is back and at the wrong time. The 7.35% rise in consumer price inflation in December is a shocker even to those who were prepared for an elevated level of inflation in the backdrop of the rise in prices of food commodities in general, and the astronomical rise in the price of onions, in particular. The disturbing December print has set off fears over whether India is entering a period of slow growth accompanied by high inflation, in other words, stagflation. Such fears have to be weighed against a few facts. First, the headline inflation number is driven mainly by food inflation at 14.12% — it was 10.01% in November and -2.65% in December 2018. While onion was the prime villain pushing up price inflation in vegetables to a huge 60.50% compared to December 2018, prices of other food items such as meat and fish (up 9.57%), milk (up 4.22%), eggs (up 8.79%) and some pulses were also on the upswing. These are a largely seasonal rise in prices and are driven mainly by supply-side factors and the prices will reverse once the supply shortfall is addressed. Second, core inflation, which is the one that should be of concern, has only inched up marginally from 3.5% in November to 3.7% in December. That said, it would be worrisome indeed if core inflation were to shoot up or if food inflation does not cool down in the next couple of months. The sharp jump in the CPI has queered the pitch for the Reserve Bank of India’s monetary policy review in February. The central bank stood pat on rates in the December policy precisely due to fears of inflation and had even revised upwards its inflation projection for the second half of the fiscal to 4.7-5.1%. The December print is ENGLISH LANGUAGE 11 Adda247 Publications For More Study Material Visit: adda247.com way above the monetary policy committee’s (MPC) mandated limit of 6% (4% plus 2%) which means that a rate cut is pretty much off the table for now. Yet, with growth sagging, there is pressure on the central bank to cut rates at least one more time to stimulate growth. It would be interesting to watch the deliberations of the MPC in February. While the market may be prepared to accept a standstill policy for now, any change in the RBI’s stance from accommodative to neutral may not go down well. A lot would also depend on the fiscal arithmetic that would emerge from the budget to be presented on February 1. Meanwhile, the government should engage all levers to address the supply-side issues that are behind the rise in food inflation. A calming down of food prices will help the bank do what the government and markets want — lower rates.

Which of the following scenarios best describes **stagflation** as discussed in the passage?

Accepted Answer

**Solution:**

1. The passage explains that the term **stagflation** refers to a situation where an economy experiences slow growth combined with high inflation.

2. Option (a) describes deflation, which is the opposite of inflation.

3. Option (b) mentions rising food prices due to demand, but stagflation involves broader economic stagnation alongside inflation, not just demand-driven price increases.

4. Option (c) correctly captures the essence of stagflation — falling productivity and inefficiency leading to higher costs and reduced output, which aligns with the passage's description of slow growth with high inflation.

5. Therefore, option (c) is the most appropriate choice.

**Answer:** Option (c)

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