Inflation falls but not unemployment

Article Title: Inflation falls but not unemployment

24-06-2025

Economy Current Affairs Analysis

Context

• At less than 3%, the inflation figure for May is well within the target set by the government of India. This has led to a celebration in the media of the Reserve Bank of India’s prowess in macroeconomic management.

• While year-on-year inflation fell from 3.2% in April to 2.8% in May, the latest Periodic Labour Force Survey shows that the unemployment rate rose from 5.1% in April to 5.8% in May.

For those employed, a reduction in inflation is good news

• But for those seeking employment, it makes no difference. They remain unemployed.

• Monetary Policy Committee meeting, RBI Governor expressed willingness to lower repo rate again if inflation continues to decline.

NAIRU (Non-Accelarating Inflation Rate of Unemployment)

• NAIRU, or the Non-Accelerating Inflation Rate of Unemployment, isthe level of unemployment below which the rate of inflation is expected to rise

• The Non-Accelerating Inflation Rate of Unemployment (NAIRU) for India is estimated to be around6.06%, according to some research

• This means that if the unemployment rate in India falls below this level, it is likely to put upward pressure on inflation

• Conversely, if unemployment is above this level, it would likely cause inflation to slow down or decrease

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