The shifting drivers of inflation in India over the past year and a half offer a good illustration. The increase in global commodity prices coincided with rapidly rising demand at home. GDP grew at 8.5 per cent last year (2010/11), faster than the trend growth rate which is now estimated to be of the order of 8 per cent.
In an environment of rapid growth and high capacity utilization, corporates regained pricing power and were able to pass through the increase in input prices to higher output prices thus fuelling generalized inflationary pressures. 10. Similar dynamics were at play on the food front.