NEW DELHI: A '
stagflation
' is an undesirable phenomenon which has persistently high inflation coupled with high unemployment and a stagnancy in demand.
To put things simply, it is an economic trend marked by rising inflation and falling
GDP growth. It can be noted that under the medium term target it signed with the government, the
Reserve Bank of India (RBI) is mandated to keep inflation at 4 per cent with a flexibility to have a 2 percentage point relaxation on either side.
In India, consumption makes up about 60 per cent of gross domestic product (GDP), and spending has slumped as businesses shed jobs and put off investment plans.
Consider this, when consumer demand exceeds manufacturers' ability to provide the goods and services, prices increase. And, if the scenario keeps going on, it translates into inflation.
A fall in vegetable prices helped India's retail inflation to ease in December to within the central bank's 2 per cent to 6 per cent target range, although it's unlikely to cut the policy repo rate soon, economists said.
(With inputs from agencies)
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