Demonetisation’s Deflationary Shock? - Learn Vocabulary

That the Centre’s decision to withdraw high-denomination banknotes was going to impact economic activity in the short term was never in doubt. But the specific contours of the effects were probably a lot less understood at the time of that announcement. The deflationary shock has manifested itself in a deceleration in retail inflation, as demand for a range of goods and services has been damped. That the headline Consumer Price Index-based gauge hit a two-year low of 3.63 per cent for November is therefore no surprise, especially given the additional factor of a favourable base effect — the reading was 5.41 per cent in November 2015. The major contributor to the slowdown in price gains was the food and beverages group, where inflation eased to 2.56 per cent largely on the back of a slump in the prices of vegetables, a highly perishable commodity. But a closer look at the food group throws the spotlight on some trends that the Reserve Bank of India had flagged in its latest monetary policy review as areas of concern. Specifically, the prices of sugar and confectionery accelerated by 22.4 per cent while meat and fish and egg also reflected persistently elevated levels. The services sectors, including transport and communication and education, also manifested stickiness, underscoring the rationale for the RBI’s cautious approach in keeping benchmark interest rates unchanged.

Clearly, signals from the inflation data pose a conundrum before policymakers. With demand impulses taking a wide-ranging knock from the shortage of cash in the hands of consumers, proponents of policy accommodation would argue that the time is ripe for the RBI to cut borrowing costs to help impart some credit-fuelled economic momentum. But as the RBI’s Monetary Policy Committee itself articulated it on December 7, “while discretionary spending on goods and services in the CPI excluding food and fuel” could have been affected by restricted access to cash, the prices of those items may weather the transitory effects since they are normally revised according to preset cycles. More importantly, the MPC cautioned that food inflation pressures could re-emerge as a consequence of disruptions in agricultural activity as a result of the currency withdrawal. The spectre of upward price pressures from key components including food and fuel — OPEC’s output cuts are already pushing up crude oil — combined with the fading away of a favourable base effect could leave the RBI with little wiggle room to support growth. With the central bank’s March 2017 target for retail inflation of 5 per cent clearly in their sights, the monetary authorities may be persuaded to keep the powder dry.

Source THE HINDU

IMPORTANT WORDS FROM ARTICLE & THEIR MEANING 

1. Contours (noun) (आकृति) – an outline representing or bounding the shape or form of something 

Synonyms – delineation, curve 

Ex: The contour lines showing the heights above sea-level are the directions along which species spread to form zones. 

2. Manifested (verb) (व्यक्त)– show (a quality or feeling) by one's acts or appearance, demonstrate 

Synonyms – demonstrate, reveal 

Antonyms – disprove, cover 

Ex: It is in Spain that above all the new spirit manifested itself. 

3. Deceleration (verb) (मंदी)– lose velocity, move more slowly 

Synonyms – decline, drop 

Antonyms – increase, rise 

Ex: The train started on a journey of acceleration and deceleration with very little cruising in between. 

4. Damped (verb) (निस्र्त्साह करना)– make a fire burn less strongly by reducing the flow of air to it 

Synonyms – abate, consume 

Antonyms – advance, build 

Ex: Such a sequence of decreasing electric oscillations and corresponding set of waves is called a damped train. 

5. Slump (verb) (संयुक्त करना) – undergo a sudden severe or prolonged fall in price, value, or amount 

Synonyms – collapse, depriciation 

Antonyms – ascent, blessing 

Ex: The stock market is in a prolonged slump. 

6. Elevated (adjective) (ऊंचा)– situated or placed higher than the surrounding area 

Synonyms – inflated, formal 

Antonyms – depressed, insignificant 

Ex: Worry, but no elevated level of distress crossed her features. 

7. Conundrum (noun) (पहेली) – a confusing and difficult problem or question 

Synonyms – riddle, mystery 

Ex: Although the mechanic tried to identify the conundrum with the car, he was unable to pinpoint the issue. 

8. Proponents (noun) (समर्थकों) – a person who advocates a theory, proposal, or course of action 

Synonyms – advocate, defender 

Antonyms – enemy, opponent 

Ex: Because April loves animals, she is a fierce proponent of the animal rights movement. 

9. Articulated (adjective) (व्यक्त) – having two or more sections connected by a flexible joint 

Synonyms – speak, pronounce 

Antonyms – ask, listen 

Ex: The president is known for his ability to articulate his thoughts in front of millions of people. 

10. Discretionary (adjective) (विवेकाधीन) – available for use at the discretion of the user 

Synonyms – elective, leftover 

Antonyms – nondiscretionary 

Ex: The president of each house has the discretionary power of appointing additional laymen, not exceeding ten in number.