Stagflation ahead?

Not unexpectedly, WPI inflation at 9.72% was not much below August’s 9.78%. So, going by the statements by various RBI officials, we may see yet another rate hike by RBI later this month. Although RBI is of the view that the demand situation doesn’t show a suitable contraction, most indicators—whether the services or the manufacturing PMI and investment numbers—are screaming red. In which case, this is one of the most important decisions for the central bank—getting a rate hike decision right at this juncture will probably mean the difference between sustainable growth and stagflation.

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