As cross-country experience tells us, inflation expectations play a key role in determining actual inflation movements. The success with maintaining price and financial stability in India has raised expectations of a structural shift in the medium-term growth path of the economy.
Although inflation in India has indeed been significantly lower since the mid-1990s compared to the 1970s and 1980s, it needs to be stressed that inflation in India still remains higher than that of 2-3 per cent prevailing in major advanced economies.