Is the RBI playing with fire?

In his speech to the Congress, President Joe Biden "pitched plans involving some $4 trillion in spending - the largest overhaul of US benefits since the 1960s, analysts say", BBC. His American Families Plan "aims to provide free pre-school for children aged three to four, paid family and medical leave, and free community college," and "would also extend until 2025 a child tax credit that was expanded during the pandemic", that would apparently "help more than 65 million children". "The American Jobs Plan proposes spending $2 trillion on improving the nation's infrastructure and paying for it by hiking corporate taxes," CNN. "Moody's Analytics found that the proposal will create about 2.7 million jobs by the end of 2030." "The nonfarm payroll employment rose by 916,000 in March, and the unemployment rate edged down to 6.0 percent, the US Bureau of Labor Statistics reported" on 2 April. Full employment is when no one willing to work is unemployed and is said to be at an unemployment rate of around 5%. If everyone is employed companies will have to compete to find workers and wages will start to rise. That is why Non-Accelerating Inflation Rate of Unemployment (NAIRU) is thought to be the ideal level of employment. In the week to 18 April, "First time claims for unemployment insurance totaled 547,000, well below the Dow Jones estimate for 603,000 and a new low for the Covid-19 pandemic era," CNBC. "US retail sales rose by the most in 10 months in March as Americans received additional pandemic relief checks from the government and increased COVID-19 vaccinations allowed broader economic re-engagement, cementing expectations for robust growth in the first quarter," Reuters. "The upbeat data, which followed on the heels of recent reports showing inflation heating up, will likely not shift the Federal Reserve's ultra-easy monetary policy stance." "Consumer prices rose in March for the fourth month in a row and the pace of inflation hit the highest level in two and a half years, underscoring new pressures emerging on the economy as the US recovers from the coronavirus pandemic," Market Watch. "The rate of inflation over the past year shot up to 2.6% from 1.7% in the prior month, marking the highest level since the fall of 2018." "By several measures, the US housing market is running at its hottest level since the mid-2000s bubble that nearly crashed the global financial system," msn.com. "Prices have surged to decade-high rates, and homebuying, while slowed from recent highs, remains elevated." "The market frenzy is being 'carefully' monitored by the Fed, but there is little reason to fear another nationwide crash, Fed Chair Jerome Powell said." Not just a housing bubble, stock markets in the US have been hitting record levels,  although all three major indices pulled back a little yesterday. The danger is not another subprime crisis in the US but increasing asset prices feeding into the general economy and causing an increase in consumer inflation through a feel-good effect. Add to that the growth in China's GDP. "On Friday, China's National Bureau of Statistics reported that its gross domestic product grew by a record 18.3% in the first quarter of 2021 in comparison to the same period last year. The figure indicates that China's economy is roaring back to its pre-pandemic levels, marking China's highest growth rate since it began recording the statistic in 1993," Fortune. If both the US and China grow strongly, global commodity prices will start rising as well. "The second wave of covid-19 in India, if left uncontrolled, could lead to prolonged restrictions on movement and supply side disruptions with consequent inflationary pressures, The Reserve Bank of India (RBI) said on Monday," Mint. The RBI is too modest. It has been running negative real interest rates for over a year despite high inflation rates, Financial Express. The US and China will do what's best for them. The RBI should do what is best for India. Roaring inflation is certainly not what we need. Warning signs are here.