Inflation has affected not only India but also the world's major economies

- Reserve Bank fails to control inflation - Inflation in India has been higher than the target set by the Reserve Bank for 10 of the last 16 months since April 2020

- Central banks around the world believe that the recent rise in inflationary pressures is due to disruptions in the supply chain and not due to increased demand.

The people of India, the Reserve Bank and the government are disturbed by the skyrocketing inflation among us. The problem of inflation has become a headache not only for India but also for the major economies of the world. Inflation in India has been higher than the Reserve Bank's target for the 10 months out of the last 12 months since April 2020, the first month since economic activity stalled due to the epidemic. The latest lending policy says that if the average inflation is above 3% for three consecutive quarters, the central bank of India has failed in its main task of controlling inflation.

This happened in the first three quarters of the fiscal year 2020-21, from April to December, but the fact that government statisticians were unable to gather enough data from the retail markets during the first nationwide lockdown means that inflation estimates for those months are in the Reserve Bank's record. Not considered reliable. Which is understandable.

Between December 2020 and January 2021, inflationary pressures were less pronounced. There was also a sharp decline in April 2021. However, after this brief respite, inflation rose again. The July figures are a little promising. Retail inflation came down faster than expected. Inflation is expected to decline over the next few months, thanks to a high base of the same months last year.

The Reserve Bank estimates that average inflation will fall to 7.5% in the third quarter from 6.5% in the second quarter before reaching 4.5% again in the fourth quarter of the current fiscal.

Central banks around the world say that the recent rise in inflationary pressures is due to disruptions in the supply chain and not to an increase in demand. They are also wary of premature withdrawal of monetary policy support from their economies, which have not yet come out of trouble. The central bank of India makes the same argument broadly, although the minutes of the recent meeting of the Monetary Policy Committee (MPC) clearly show that staying on the current path for a long time is worrisome. The consensus in the bond-market is that monetary policy will generally proceed in four stages: an increase in the money-market rate to return from the policy corridor, an increase in the reverse repo rate, changes in the monetary policy from favorable to neutral, and finally an increase in the repo rate. Instead of an unexpected shock that could destabilize the bond market as well as the economy, it will be introduced very slowly.

This is also a good time to see where India stands on the inflation front compared to other major economies. The sharp rise in inflation in the US has clearly caught everyone's attention. Inflation concerns are growing in some other countries, such as Germany. In both developed and emerging markets, India's inflation is still relatively high compared to other major economies. Countries like Brazil, Mexico, Turkey, Pakistan and Russia are more expensive than India. Argentina's example is clear, with inflation hovering above 21% in July.

Another way to check the international price situation is to compare inflation with the targets given to central banks in different countries. If we take a look at the six major economies with formal inflation targets, including the multinational Europe region,

In July, inflation in these six economies surpassed their respective inflation targets (in the middle of their point targets or ranges depending on the formal order). Exceptional countries that managed to keep inflation close to target were China, Japan, Britain, Sweden, Switzerland, Indonesia, Thailand and Israel. It will be interesting to see how many countries are finally able to keep average inflation below or close to this year's target.

The figures presented above point to two facts. First, there is the problem of inflation in India which has persisted for more than a year. Second, most other major economies are also struggling to keep inflation close to their formal targets. One big difference is that India's inflation remained high during the epidemic, but only after most other major economies accelerated their economic recovery. Assuming that most of the central banks are in control of the epidemic, they will start moving towards monetary policy simplification in 202. Maintaining balance is a difficult task for them. They should not act so fast that the economic recovery gets stuck on its track, but not so late that inflation rises too high to the expected level which triggers a self-fulfilling cycle of emotional pressure.