What this government has achieved with inflation

The rational expectations school opposed the non-neutrality position by arguing that, under flexible markets, repeated monetary shocks given to facilitate growth could only result in recurrent price rise in the long run.

- ARUP MITRA

The evidence of an inverse relationship between inflation and growth further demolished the role of price incentive in stimulating growth.

Decomposing inflation into two components—core and non-core—the former may be interpreted as the underlying trend of inflation after eliminating temporary price changes caused by supply interruptions or erratic market behaviour.

Literature identifies core inflation as that which is capable of affecting the real output in the short term only and not in the long run. Thus, it coincides with the vertical long-run Phillips curve.

Shocks have been categorized into two kinds: core inflationary disturbances and non-core disturbances.

The core inflation disturbances are medium- and long-term output-neutral while the non-core disturbances are transitory shocks which propagate to inflation but have no substantial and persistent impact on inflation.

This allows for making meaningful distinction between different inflation components based on their effects on the macro-economy.