In India too the inflation rate rose from 4.7 per cent in 2007–08 to 8.1 per cent in 2008–09 and fell to 3.8 per cent in 2009–10 (Table 1). However, the inflation rate backed up and stayed near double digits during 2010–11 and 2011–12 before showing some moderation in 2012–13.
Given India’s good track record of inflation management, the persistence of elevated inflation for over two years is apparently puzzling. Second, the deceleration of growth and emergence of a significant negative output gap has failed to contain inflation. It is understandable if inflation goes up in an environment of accelerating economic growth.