Threshold Inflation

Reserve Bank of India has been single-mindedly focusing on containing inflation since last two years and more. It is a view of the Central Banks all over India including India that there is a potential trade-off between growth and inflation. This implies that at low levels, Inflation is beneficial for growth but at higher levels inflation can be inimical to growth. The higher level beyond a threshold will be detrimental to the economy. In India, the threshold inflation has been estimated for the period 1970-71 to 1999-2000 is 5% . This would imply that at inflation rates beyond this level, growth is impacted adversely. But in recent times, RBI has said that the threshold inflation rates should be revised in view of the changing economic scenario and rigidities in inflation rate

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