In an era of price stability and wellanchored inflation expectations, imbalances in the economy need not show up immediately in overt inflation. Increased central bank credibility is a double-edged sword as it makes it more likely that unsustainable booms could take longer to show up in overt inflation.
For example, the price of diesel increased from Rs20 per liter to Rs38 per liter during June 2003 and June 2007 – a cumulative increase of 90 percent – and has increased to Rs79 per liter by October 2010 – an increase of another 108 percent.