Conflict and inflation: Indian realities

Policymakers must be wary of using frameworks tailored by rich countries to address rich country problems when crafting India's inflation-control strategy

Eminent economist Olivier Blanchard recently sparked a lively discussion when he stated that “inflation is fundamentally the outcome of the distributional conflict between firms, workers and taxpayers.” The conflict Dr Blanchard refers to happens in a steady state, i.e. an economic situation in which all resources are fully employed and growth only occurs due to improvements in productivity, working-age population growth, or inward migration. But the drivers and impact of inflation are very different in developing countries.
 

The main thing to note about inflation in developing countries is that it is highly segmented, much more than in rich countries, because