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Sticky Inflation

Sticky Inflation:

Sticky inflation has dashed the hopes of early rate cuts with experts now pencilling in repo rate cuts by the RBI from December this year. Economists expect a shallow rate cut cycle with RBI likely to lower the repo rate by 75 – 100 basis points.

  • Sticky Inflation refers to a phenomenon where prices do not adjust quickly to changes in supply and demand, leading to persistent inflation.

Features of sticky inflation:

  • Prices for goods or services that don’t appear to be coming down anytime soon are considered sticky.
  • Rising wages and prices for consumer goods and services are typically the main factors behind inflation stickiness.
  • Prices for medical services, education, and housing are some of the most important factors that can contribute to sticky inflation.
  • It erodes the purchasing power of consumers and puts pressure on housing affordability.
  • It presents challenges for central banks in controlling inflation without causing a recession.
  • To address sticky inflation, central banks usually raise interest rates.
  • However, raising rates too fast can cause the economy to fall into a recession, while not raising them enough will allow prices to continue increasing.