India's retail price inflation in November 2019 jumped to a 40-month high, at a time when growth has slowed to a six-year low, prompting some economists to warn that the country could be entering into a stagflationary phase.
Normal scenario:
Typically, inflation rises when the economy is growing fast. That’s because people are earning more and more money and are capable of paying higher prices for the same quantity of goods.
When the economy stalls, inflation tends to dip as well – again because there is less money now chasing the same quantity of goods.
Stagflation scenario:
Stagflation is a portmanteau of stagnant growth and rising inflation. Stagflation is said to happen when an economy faces stagnant growth as well as persistently high inflation.
With stalled economic growth, unemployment tends to rise and existing incomes do not rise fast enough and yet, people have to contend with rising inflation. So people find themselves pressurised from both sides as their purchasing power is reduced.
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