This is generally a cost push inflation
in a possible range of over 1%.
The inflation in the country is due to cost push inflation
, which is driven by high oil prices and has hardly any connection with the interest rate.
He said: "Currently this looks unlikely to change, as we do not foresee an increase in interest rates in the first half of 2012, and are expecting internal demand pull and external cost push inflation
to continue over the coming months.
He was, as King and Millmow make clear, one of those who denied the importance of cost push inflation
Add to this the UK government's objectives to raise National Insurance, raise Value Added Tax and raise Capital Gains Tax and the overall impact will be cost push inflation
158 billion on account of collection of taxes on petroleum products during the first eight months of current fiscal year, which was fuelling cost push inflation
The government can adopt expansionary fiscal and monetary policies, which may cause demand pull inflation; simultaneously it has the power to impose indirect taxes or increase tax rate that may result in cost push inflation
and finally it can generate "price/wage spiral" which trigger a process in which workers trying to keep their wages up with rise in prices and employers passing higher costs on to consumers.
Depreciation has made exports more competitive, hence obviously have become more expensive that causes reduction in demand for exports and cost push inflation
If imports are a significant part of the consumption basket, there will be cost push inflation
Low rate of return on saving instruments together with average double digit inflation in the country reduce supply of credit in loanable funds market and whatever meagre credit available for private sector, in such a grave environment when the government also demand for credit, the rate of lending surges and thus whatever credit remain for private sector goes to in producing output which demand is relatively inelastic consequently cost push inflation
spiralled and remaining economic sectors recessed.
A tight policy stance may not directly address supply-side pressures, as it acts as a barrier to a spill over from cost push inflation
to more generalised and entrenched set of inflationary pressures.