New Delhi, Jan 31 (UNI) Tighter monetary policy regimes across the globe and supply chains adapting to economic uncertainty has resulted lower inflation approaching Central bank target levels, says the Economic Survey, tabled by Union Finance Minister Nirmala Sitharaman in the Parliament on Friday, but pointed out that risks of “synchronized” price pressures persist.
Synchronized inflation is when the inflation rates of multiple countries are closely aligned and it can be a sign that the country’s economy is closely linked to other countries’ economy.
“Inflation rates across economies have trended downward steadily, approaching central bank target levels. This has been the result of tighter monetary policy regimes across the globe and supply chains adapting to higher levels of economic uncertainty. As a consequence, price pressures eased in 2023 due to a reduction in fuel prices. In 2024, it was attributed to a broad-based reduction in goods inflation,” according to the Survey or the Report Card of the functioning of the government during the year.
However, disinflation seems to have slowed due to the persistence of services inflation, while core goods inflation has fallen to negligible levels. The IMF World Economic Outlook (WEO) October 2024 reasons that this is on account of higher nominal wage growth as compared to pre-pandemic trends.
The report notes that there are early signs that these pressures are abating, thereby aiding the disinflation process.
However, recent disruptions in global shipping have pushed goods prices up. These events have also pressurised the global supply chains. This is reflected in higher levels of the Global Supply Chain Pressure Index (GSCPI) in the quarter ending September 2024. It has been noticed that while container freight rates normalised in 2023, they experienced a significant surge in 2024. This was due to stronger demand, shipping route disruptions in the Red Sea, and delays at the Panama Canal, all of which have partially sustained inflationary pressures.
The risk to inflation from increases in commodity prices seems limited in 2025-2026, the Survey said adding that after softening in 2024, commodity prices are expected to decline moderately. While this easing is a positive sign, the risk of “synchronized” price increases remains, especially during periods of global economic stress.
Although recent shocks like geopolitical conflicts and extreme weather have caused price fluctuations, their impact has largely subsided, leading to more varied commodity prices. However, escalating tensions continue to pose a risk of synchronised price increases, undermining the effectiveness of inflation mitigation.
