INFLATION IN UNITED STATES

INFLATION IN UNITED STATES

INFLATION IN UNITED STATES

Relevance for Prelims: Inflation in the United States and its implications on Global World

Relevance for Mains: Bond Yield Inversion and Recession

Context

Recently, the Inflation level in the United States has surpassed 6%, the highest ever in the last 30 years. These figures are attracting a lot of attention around the globe leaving repercussions everywhere.

There are many reasons which could be attributed to an increase in inflation such as an increase in money supply by Fed Reserve Bank, Handout-induced, and supply-side disruptions.

Inflation in United States

Inflation in the US

IMPACT OF INFLATION IN THE UNITED STATES ON INDIA

  • IMPORTED INFLATION: Price rise in global economies results in imported inflation. Whatever India buys from the US will be costly comparatively and will further induce inflation.
  • CONTRACTIONARY MONETARY POLICY: An increase in inflation generally leads to the central bank using contractionary policies which will decrease consumption, leading to fewer exports in India.
  • HIGH COST OF BORROWING: Indian investors who borrow funds from overseas markets owing to lower interest rates will find it higher due to contractionary monetary policy which makes lending dearer.
  • IMPACT ON REMITTANCES: An increase in inflation could also affect in remittance supply, given the fact the U.S. is one of the top countries from which India receives remittances.

To deal with this situation, RBI might have to align its policies with global ones as imported inflation is one of the worst to deal with.

Source:

The Hindu

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