UNDERSTANDING THE IMPACT OF INFLATION Published on Wed, Jun 01, 2011 at 10:42 | Source : Moneycontrol.

com Updated at Wed, Jun 01, 2011 at 10:57

Inflation is rearing its ugly head once again. read a headline in a newspaper. Petrol prices are hiked by Rs. 5 per litre very recently. This was among the steepest increases one has seen in years. read another. The common man is concerned. The prices are rising. Costs of various items of consumption are on the up. The Reserve Bank of India and the Ministry of Finance are making statements to calm the situation down. There are numbers and statistics thrown by the Government agencies. Let us understand the impact of inflation on our pockets. For that purpose, let us take the example of petrol prices. After the recent hike, petrol costs Rs. 68 per litre in Mumbai. Around 9 years back, i.e. in 2002, it used to cost Rs. 34 per litre. A simple back of the envelope calculation suggests that this is rise in price at around 8% p.a. Not a very steep hike, one may say. However, what has happened to the pocket of general public? During this period, a period of almost a decade, the lifestyle of any common Indian would have improved and one is likely to have moved from a 2-wheeler to a 4-wheeler. Both these vehicles consume different amount of petrol per km. Assume that the 2-wheeler used to run for 40 km for one litre of petrol and the car gives average mileage of 10 kmpl. This means in 2002, one was travelling a distance of 40 km per litre of petrol spending Rs. 38. Thus, one would spend 95 paise on petrol to travel 1 km. Come 2011, the same person now pays Rs. 68 for petrol that will make his car go 10 km. So, the cost of petrol per km of travel now is Rs. 6.80. This makes the rate of increase in cost a whopping 24%. Lot of peoples do not consider inflation while planning their future. The temptation of instant gratification does not allow one to plan and invest for future at the cost of present day entertainment. The retirement looks too far away. Put things in perspective and things start to look scary.

Go ahead, enjoy life, but please do not forget what the future may look like. Control your current expenses and have a good future. Ones lifestyle could be the greatest asset or the biggest liability. It is all in your hands. All the best!

RISING PRICES, STAGNANT INCOMES Posted at YouthKiAwaaz on July 2, 2011 in Biz and Eco 1 Comments By Misna Sameer: Almost every nation in the world has been crippled by rising prices and stagnant incomes and in worse scenarios, a complete loss of incomes. Prices have been surging up to unprecedented levels. This was an imminent after-math of the global recession of 2007. Though every strata of the society were affected by this problem, the worst effected was the middle-class. As basic necessities became more expensive, people had to give up many of their indulgences to cope up with the current economic crisis. India is, in fact, one of the fortunate less-affected nations.

With food becoming pricier by the day, people worldwide are changing their diets and many are no longer having the same food they had two years ago. According to a recent survey conducted by an UK charity group Oxfam that covered over 16,400 people in 17 countries, including India, Brazil, Germany, Ghana, Pakistan, the UK and the USA, 54% of overall respondents and a majority of people in most countries surveyed said they are not eating the same

food as they did two years ago, the period before the current food price crisis began. Though India was not directly affected by the global recession, prices soared up to the sky. According to Prime Minister, Mr. Manmohan Singh, the situation that emerged in India was because of international commodity prices and since India is no longer a closed economy, the Indian society had to bear the brunt of the aftermath of the global recession. Apart from the politically right reason behind inflation as suggested by the government, there are various other factors fuelling inflation in India. Rampant corruption in both the public and private sector is a major reason for price rise as well as widening gap between the rich and the middle class. The government has not acted against MNCs and some Indian traders indulging in overpricing and hoarding goods. In fact, lax in regulations by the government in the name of liberalization has led to business houses over pricing and looting the consumers. Another reason is the large demand for imported western commodities and brand consciousness, making Indian metropolitan cities a haven for malls and hyper markets brimming with foreign good and luxury items. The property prices have escalated by 400-500% in the past few years. The rate of growth in India is at unprecedented rate which leads to price rise. If this growth can be slowed down, that will lead to a more stable economy for the consumers as well as business houses. Rising prices is, in fact, an indication of economic growth. But this will lead to development of the nation only if the incomes rise at par with inflation. Most organizations help their employees cope with inflation. A cost-of-living allowance (COLA) adjusts salaries based on changes in a cost-of-living index. However, according to studies, increase in prices is manifold the increase in incomes, which has made life deplorable for the ever proliferating Indian middle class and poor. Further, our Finance Minister, Mr. Chidambaram, once claimed that a bit of inflation was a small price to pay for growth. Really? Growth that leads to suffering- quite an amusing paradox! Do we really want this kind of economic growth at the cost of the common man? Isnt it high time our government distinguishes between economic Growth and Development of a nation? The government has promised to do its best to curb growing inflation rates. However, its pretty evident that these tall words have not had much of an effect on the economic situation of the great Indian middle class.

Its time raise our voice against this. Do we want to wait for an Anna Hazare to stand up for us? Let the youth of the nation take the wheel for a developed economy in which the common mans welfare is the highest priority. Inflation is a general rise in prices of goods and services. Inflation results in loss of value of money. INDIA INFLATION RATE The inflation rate in India was last reported at 8.72 percent in May of 2011. From 1969 until 2010, the average inflation rate in India was 7.99 percent reaching an historical high of 34.68 percent in September of 1974 and a record low of -11.31 percent in May of 1976. Inflation rate refers to a general rise in prices measured against a standard level of purchasing power.

The mainstream economics defines the word inflation as a general rise in prices measured against a standard level of purchasing power. By and large, it is understood that inflation is caused by the correlation of the supply of money with output and interest rates

Indian economy has been facing, however, sudden outbreak of scams, fresh highs of corruption level and lack of policy reforms from the UPA government for faster economic growth have caused inexplicable consequences on Indian growth mechanism as well as budget of an individual Government needs to adopt systematical economical reforms in various sectors like Infrastructure, education, health and public distribution system. It is challenge on part of the government to bring down the inflation at the rate where it can refrain from giving excuses.

INDIAS THEME FOR 2011-12: INFLATION Posted at YouthKiAwaaz on May 28, 2011 in Biz and Eco 0 Comments By Ashik Gosaliya: Inflation, no other economical theme I could have justifiably denoted to the year 2011-12. The mainstream economics defines the word inflation as a general rise in prices measured against a standard level of purchasing power. By and large, it is understood that inflation is caused by the correlation of the supply of money with output and interest rates.

Two different worlds are having two different trends but one single problem: Inflation. It is learnt that peoples perception about global economic scenario hasnt changed much. Developed economies are still careworn with sustainable job environment deficit, when emerging global powers are marred with high price rise and high interest rates. While the advanced economies have been struggling to create growth and jobs and fight deflation, the new world economies are struggling with the negative spin-off effects of rapid growth and strong domestic demand, and are fighting rising inflation. Indian economy and Inflation: Hide and seek is the name of the game when it comes to inflation in India in the past two years. In India, inflation has become smart political excuse to high growth, which neither seems high nor steady. Certainly, we cant argue against the fact that global issues have made their contribution to add to the woes, Indian economy has been facing, however, sudden outbreak of scams, fresh highs of corruption level and lack of policy reforms from the UPA government for faster economic growth have caused inexplicable consequences on Indian growth mechanism as well as budget of an individual. Despite high inflation and colossal corruption patterns, India overcame the reparation done by global recession with little slower growth rate.

When India touched double digit growth, Indian enthusiasts have started writing China off, comparing it to Indian growth and started painting stories of India over passing China by 2020. Reality is not that transparent. India has high inflation rate of around 9 per cent and consumer price Index (CPI) is currently flashing at more than 10 per cent. Prices of onions, vegetables and other staples are rising even faster. The latest data of the government food price index shows they jumped almost 17% last financial year. Situation on dining table has changed; food is eating people in India instead of people eating food. Moreover, consistent rise in government borrowings and high purchasing power have added fuel to the fire. Indian Inflation Factors: Notwithstanding high growth of 8 percent, recent analytical opinions suggest that India is heading towards a difficult time. Two political excuses are making most of the knock into the pocket of common men. For a longer period of time Finance Ministry remained hopeful of controlling high price rise within six months (Pranab Mukherjee never pronounced which six months he is referring to). Indian government suddenly woke up to the 16-18% price rise with an excuse that Inflation remains moderately high in growing economy. When that argument was countered by economists on technical grounds, government came with another excuse of global price rise and burning crude oil prices. Well! That is quite a valid excuse but not enough to erase policy level deficiencies. Economy pundits blame India for its high food price cutting into budget of people. Its not possible for any nation to de-hyphenate its economy from political events. Political developments are enough to equate the real interest rate either high or low. Inflation, interest rates, fiscal deficit, current account deficit and depreciation of local currency could be the reason for slowing down the economic growth. RBI is worried about these things, which have virtually hampered the dream level of economic growth. Loose budgets over a period of years, easy money availability with uninspiring approach towards much-needed deregulations and investments have created a tailback that generated inefficiencies and push up prices. Macro economical factors: Nope, it doesnt mean that as an economy India is giving any negative vision to its people. I would like to repeat the famous words of exFinance Minister, P. Chidambaram, Our fundamentals are strong. Yes,

they do and wont let India break down. But we are aware of what significance political assurances hold in real economical crisis. There are strong macro economical fault lines that need to be observed closely. They clasp potential to cut the economic outlook to certain extent and will keep foreign investments away from the economy i.e. scorching level of public debt. Rise in government spending and widening of fiscal deficit would jeopardize the economic growth. Indias public debt zoomed to more than 76 per cent of the total GDP, which is much higher than ever expected. It has increased with the speed of 10 plus percent since 2007. Another concern is capital deficit. Current account deficit is expected to inflate further supported by depreciation of Indian Rupee (due to high inflation and interest rates) will make imports dearer and Indias largest import product is crude, higher crude oil prices as projected and lower expectations of foreign capital inflows will dent foreign investment environment. Quick Fix: There cant be any quick fix to long running troubles India has been facing. Government needs to adopt systematical economical reforms in various sectors like Infrastructure, education, health and public distribution system. It is challenge on part of the government to bring down the inflation at the rate where it can refrain from giving excuses. Since Indian government has already committed to invest up to $1 trillion in infrastructure, however to attract FDI and to transform itself into best investment destination, India need to keep up the momentum, infrastructure development needs to step up moderately. Sectors like health, agriculture, food processing, education and entrepreneurism need big boost from the government. Final Words: In more than one way Indian economy is great learning lesson for the world. Growth, if solves some, creates some other problems. There is reason to be hopeful as what is required strict fiscal policy and tight interest rates the central bank of India is exactly moving into the same direction. Since last year RBI has increased policy rates by 9 times and now it is ready to compromise short term growth to control this maniac for the long term sustainable growth. While I was writing this, two contradictory statements came to my notice. Inflation pressure to continue. Inflation seen below 8 % if monsoon good.

Inflation is a general rise in prices of goods and services. Inflation results in loss of value of money. If some commodity demands a price of 10 rupees 10 years ago, it now demands Rs. 50. This means there is loss in value of rupee by about five times w.r.t. to that commodity. So in general all commodities appreciate over time. This is inflation. Inflation can be compared to nature. One talks about it but does nothing about it. As in the case of nature, which is thus far beyond our control, one can take certain defensive measures to offset the impacts

of inflation. Hence most economies have not had much success in dealing with inflation. Two U.S. presidents (Ford and Carter) have referred to it as public enemy number one. Indian Prime Minister Dr. Manmohan Singh calls it the first priority of his government to suppress inflation below acceptable levels. Inflation remains a matter of concern because it is inevitable, persistent, and apparently immune to numerous remedies. Experts in the economics and numerous politicians have tried to give various solutions, none of which have gained absolute acceptance. The nature is tolerated because one cannot control it; inflation is not, because it is thought to be controllableat least within limits. Inflation has been defined as too much money chasing too few goods. This attributes the cause of inflation to monetary growth relative to the output of goods and services. Inflation is a persistent rise in the general level of prices of all good and services taken together. A specific price in one commodity may rise dramatically as in the case of oil or gas. But if this specific price is nullified by declines in prices of other commodities, the general price level may not rise at all i.e. there is no inflation. The general level of prices depends on a series of individual price changes and their relative importance some measure of these factors, namely, a price index is required. But rise in some individual price index will not result into what is generally meant by inflation, its consequences wont be particularly serious if the change in the price index quickly reversed itself and price stability is maintained. To become and

remain a problem demanding concern, it should involve a long succession of increases in a price index. A price indexs acceleration must take a fairly sharp increase over some previous norm or accustomed levela rise that either continues to accelerate or that stays at the new higher level. From 1967 on, the CPI (a form of index for measuring inflation) increased at rates well above 4% and the rate of increase has risen steadily from 6% per annum in 1976 to about 13% in 1979-1980. Thus inflation can be defined as a sharp increase in the rate of change of a price index above an acceptable level that lasts over a time period long enough to create expectations of its future persistence.

Inflation And Economy December 12th, 2009 The rate of inflation and the economy are closely related to each other. The growth of the economy of the nation is judged by the growth in the Gross domestic product or the GDP but that is not enough to be able to understand as to how many people are actually doing well because of the rise in the Gross domestic product. The Gross domestic product is a gauge often used by the Government to show that India is indeed doing well. But often these ratings are not a

mirror image of what seems to be happening in the country because the inflation rate is also a tool which helps us to witness what the common man is going through because the inflation rate carries with itself the prices of fruits, vegetables, cereals and other essential commodities which are required for daily usage. The Inflation rate in India often crosses six or seven percent. Out side of India in the developed countries the rates of seven percent and beyond are unheard of. But in India the inflation goes high at several times. It has also led to the downfall of various governments who have been ineffective in controlling the rate of inflation and hence have invoked the anger of the people. The economic condition of the country and the rate of inflation go hand in hand and they should not always be talked about as alien to each other or not connected. And hence countries should be looking at a high GSP growth and also on the other hand, low rates of inflation which will all be beneficial to the country and its people.

INDIA INFLATION RATE The inflation rate in India was last reported at 8.72 percent in May of 2011. From 1969 until 2010, the average inflation rate in India was 7.99 percent reaching an historical high of 34.68 percent in September of 1974 and a record low of -11.31 percent in May of 1976. Inflation rate refers to a general rise in prices measured against a standard level of

purchasing power. The most well known measures of Inflation are the CPI which measures consumer prices, and the GDP deflator, which measures inflation in the whole of the domestic economy. This page includes: India Inflation Rate chart, historical data and news.

Country Indicator Reference Actual Previous India Inflation Rate May/2011 8.72 9.41

Next Impact Release

7 Jul, 2011, 08.24AM IST, Read more on World Bank|Washington DC|Washington|Public Policy|NSS|India|Delhi|China|Biofuels Raghav Gaiha & Nidhi Kaicker

The UPA government's poverty discourse is schizophrenic. While there is a

rising crescendo of universalising food subsidy on the grounds that food is a basic entitlement, there are emphatic pronouncements that the continuing food price surge with slight weakening in recent weeks is unavoidable given the global surge. Whether intended or not, the presumption that the poor are not likely to be hurt much or, if hurt, cannot be protected against rising food prices is specious, if not perverse. A recent World Bank study (M Ivanic, W Martin and H. Zaman , 2011, 'Estimating the Short-Run Poverty Impacts of the 2010-11 Surge in Food Prices' , Washington DC: Policy Research Working Paper 5633, April) throws valuable light on the nature of the food price surge, why it differs from the previous surge that peaked in 2008, and their poverty impacts . Of particular interest are the likely poverty impacts of price surge in India. First, a brief review of the differences in the two food price crises is given. The more recent price surge (June-December 2010) is more broad-based across food groups. A confluence of weather shocks in large producing countries and export restrictions contributed to a 75% increase in wheat prices while maize prices rose about 73% due to downward revisions of crop forecasts and use of maize for biofuels. Rice prices, by contrast, rose moderately (21%). However, unlike the previous surge, other food commodities' prices also shot up - sugar (76%) and edible oil (soyabean oil and palm oil prices were up by 54%) - as a result of supply shortfalls. Another important difference is the stronger links between crude oil prices (or, more generally, energy prices ) and agricultural markets since 2005, with the passthrough elasticity rising from 0.22 for the pre-2005 period to 0.28 more recently. Of key importance is the emergence of biofuels as a commercially viable source of energy that raises the demand that agricultural resources and productivity must meet. While there has long been a partial link between energy prices and food prices through production costs, this demand-side link is worrying. In particular , energy prices have been more volatile in the past decade . A price link between energy and food implies that this volatility will spread to food prices in the future, as current evidence seems to indicate. This may impair prospects of higher agricultural investments. What is crucial for understanding the impacts of global food price surge is transmission to domestic prices. Several factors determine this transmission . For food importing countries, the key factors are the exchange rate, trade policies and the speed of adjustment . For countries that are not so dependent on food imports, market conditions -

local crop conditions, supply costs and policy measures - matter more. Available evidence suggests that international grain prices and domestic prices moved in tandem but over a very wide range. Specifically, global wheat prices doubled (in the eight months to February, 2011) but the rise in domestic prices in Asia generally did not exceed 70%. India , China and Pakistan were the few exceptions where the domestic prices rose by 10-20 %. The fact that food is assigned a high weight (46%) in consumer prices in India, however, implies that food price inflation drives general inflation and thus impacts poverty Inflation in India Inflation as an economic phenomena may be described as the continuous upward spiral of prices in all parts of the economy. This can be described as a boost to the economy, but, if it is not properly handled we may be burdened with rising prices which may prove detrimental to economic growth. The economic situation in a country can be analyzed under the following heads of production and distribution. When we talk of production we are considering the fields of agriculture and industry. In the agricultural arena, the productive process involves all farmers activities in the fields together with the working of co-operatives for providing of facilities like better seeds, fertilizers etc., and last but not the least the facility of proper marketing by the co operatives to enable the farmer to get the return for his labour which should be reasonable enough an amount for him to be able to look after his domestic needs and responsibilities. This is desirable to enable the Indian farmer to progress. This seems to be quite logical and simple, but does it really benefit the farmer, how does it aggravate or remedy the process of inflation. In its effort to help the farmer, the Government buys the grain from him, and we have huge warehouses stacked with grain which is expected to feed the Public Distribution System. For this, experience has shown that, the lengthy distribution system has often resulted in a lot of wastage of food grains, while the Government on its part, is trying to fix a high price for the farmers grain and send food for the common man. Here again prices are fixed by the Government and steadily keep increasing resulting in aggravation of the inflationary process. If the farmers are provided facilities of better seeds, implements and marketing facilities, production would improve and the market forces of

supply and demand would automatically fix appropriate prices. In the same way, in the industrial sector, also, the Government can help to finance Projects which are found to be socially and economically beneficial, and there are fewer loans not paid back to banks. Thus even in the industrial sector it is important to have the national interest uppermost in the minds of the authorities. It is not uncommon to see large Projects worth crores of rupees going halfway and then being abandoned. If it was not a useful Project for the Nation, why was it ever started, and colossal sums of money wasted in it? The same trend has aggravated the upward spiral of the ogre of inflation, ever since the advent of industrialization in free India. In the politically independent India we have seen great industrialists like the Tatas and the Birlas who have without fail combined industrial progress with rational utilization of their profits for the benefits of the people. We can be sure that, if their examples were followed for our guidance all the help in the form of Capital goods and money loans from the IMF and the World Bank would, in the span of half a century see India at a much better economic position than we are in, to day. As the number of rules and regulations increase there is less participation of market forces and prices continue to be fixed at higher and higher levels, with each passing year. Unless we learn to spread out our gains over a large number of people the inflationary trend will continue to be fuelled. Every time we have the national budget raising any petrol or diesel prices, we see gradually all prices receive an impetus to rise, and inflationary trend just continues unabated. Hence, in the industrial sphere also we see how artificial fixation of prices leads to further inflation. In India the importance of small scale industries cannot be ignored. In this area also we see that though, co operatives are prominent and do a lot of good to the village artisan, but, once again, the marketing which is done by the co operative, it is of great benefit but, once again the worker still does not get a proper share of the gains. The artificial fixation of prices in no manner ensures the gain for the workers because of the inflationary trend fuelled by fixation of prices rather than the sharing of profits by a larger number of people. In essence, we have seen that, though India has progressed with the passage of time, this progress made does not compare

favourably with other countries like Japan who managed to bounce back on the International Economic scene. Inflationary trends are essential when we have just started to invest in capital goods from foreign markets, and are just building up the infrastructure of roads, railways and dams etc., but that phase soon after a few decades should get over, when the industry starts using their machines to the optimum capacity, and the transport system facilitates trading activity even to the remotes part of the country, and the poverty line includes lesser people with each passing day.. At the individual level also as citizens of India we can help in curbing this process for example, when we buy anything do we insist on taking a receipt for it? I daresay most of us do not, because, not taking a receipt helps the shopkeeper to save his income tax, and the customer saves the sales tax. Hence the system is today flourishing because each one of us, yes, each one of us is contributing to the very existence of Black Money and this in turn restricts the spread of benefits of progress to the poorer classes, hence a major part of the Indian population continues to live in abject poverty, with a total lack of facilities, education, and have, hardly any chances of progress. Prices must come down by the play of market forces and not in the form of depression leading to increase of unemployment and poverty. India Economy 2010 Overview In order to keep the economic growth during the time of worst recession, Federal authorities in India has announced the stimulus packages to prop-up the economic growth. To finance the stimulus packages, Indian Government has raised over $100 billion over the last four quarters in a way to finance the stimulus package. Countrys Public debt, according to the latest data has zoomed to over 50% of the total GDP and Indias Central bank, Reserve Bank of India has started printing new currency notes. Central Government Debt