Then and now: Economic Survey finds key differences between current inflation and in 1970s

The 1970s inflation was spurred by the oil crises that hit in 1973 and 1979 and thus led to rise of commodity prices across the world

The current inflation is seeing some major differences as compared to the one that hit in the 1970s, the Economic Survey 2022-23 said on Tuesday. The survey found that the Indian economy is projected to grow in the range of 6 to 6.8 per cent in 2023-24 as compared to the projected expansion of around 7 per cent in the current fiscal. The survey was tabled in the Parliament by Union Finance Minister Nirmala Sitharaman on Tuesday.

As we await the Union Budget to be tabled on February 1, let's look at a comparison between inflation in the 1970s and the recent one.

The 1970s inflation was spurred by the oil crises that hit in 1973 and 1979 and thus led to a rise of commodity prices across the world and its aftereffects were also felt on prices of other goods and services, the survey said.

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Oil crises of 1970s

The survey said that the price rise of oil recently is comparably lesser than when it happened in the 1970s. But interestingly, inflation in the 1970s was mostly limited to oil prices but in the present scenario, the crisis has hit a wider range of commodities. "Prices of non-oil energy, some agricultural goods, fertilisers, and metals have all risen well above their pre-pandemic levels in the current year," the report mentioned.

Commodity supply disruption — then & now

The report also says that commodity supply disruptions played a smaller role in the price rise in the current scenario as compared to the 1970s. "Global commodity supply chains have now become more efficient than in the 1970s and hence, the inflationary pressure can be absorbed with greater ease.

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"However, supply disruptions could intensify over the coming year, as the war in Ukraine will lower global production of wheat, maize and fertilisers, while price caps on Russian oil and gas may reduce the supply of these products," the report said.

A key difference between the recent inflation and that of 1970s is that the former, which has been steadily on the rise since early 2021, has followed after several years of low inflation. Compared to it, the inflation of the 1970s was also beleaguered with a backdrop of several years of high inflation prior to that.

Central banks fare better now

"The 1973 crisis closely followed the collapse of the Bretton Woods managed exchange rate regime as the goals and even instruments of monetary policy were poorly defined in many countries. Arguably, central banks have much clearer and more robust institutional frameworks that focus on price stability today. This has prevented inflation expectations of the public from becoming unanchored despite a sharp rise in inflation during the year 2022," the report said.