Inflation Dynamics in India

What is it about?

The paper studies the relative role of some monetary and structural factors affecting inflation in India since the mid-1990s. The paper finds that both the monetary factors including money supply, interest rate, exchange rate, and output gap have a significant role. However, the output gap has a more prominent role than the monetary factors. The paper also studies the relative role of primary, secondary and the service sector output gap in inflation where the service sector output gap accounts the highest variations in inflation followed by the primary and the secondary sector inflation.

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Why is it important?

A more prominant role of the output gap in the variation in inflation indicates only through the monetary management it would not be possible to control inflation.