inflation
You walk into your favourite neighbourhood grocery shop. A year ago, you bought a loaf of bread for ₹30 and now the same oaf of bread costs ₹40. You might just shake it off and say, “That’s just how things go, prices always rise”. But the little rise in every item we buy, such as milk, vegetables, petrol, bus fares, electricity bills, school fees, etc, is what economists call inflation.
Inflation, in simple terms, is the rise in the general level of prices of goods and services over time. It is not about the price of one product rising, but every product becoming more expensive, little by little, year after year. And while a small, steady price is considered normal and is even healthy for an economy, when inflation rises too quickly or unpredictably, it can affect the daily lives of people, the profits of businesses, and the stability of the nation.
Understanding Inflation Through Everyday Life:
Ravi, a schoolteacher, his wife Meena, and their two children. Ten years ago, then could manage groceries with ₹5000 a month. Today, for the same products, he needs ₹9000. Have the products changed so much? No, it is that money buys less over time.
This shrinking power of money is inflation. You can hold a ₹100 note in your hand, but every year its value reduces.
Types of inflation:
Economists classify inflation into three broad types.
i)Demand Pull Inflation
The latest iPhone 17 has been launched, and one million people want to buy this new smartphone, but only 70,000 iPhones are available; prices will rise. This is demand-pull inflation (too much demand chasing too less products).
ii)Cost-Push Inflation
Here, prices rise because the cost of production rises. When crude oil prices rise, vegetable prices also rise. This is because of fuel being used for transportation. This inflation in price is then passed on to the end user, i.e, customers.
iii) Built-in Inflation
This inflation feeds itself. Workers demand higher wages because prices are rising. Companies pay them more, but then increase the prices of goods to cover the higher wages. This cycle keeps prices climbing.
Causes of Inflation:
Excess money supply: When too much money is printed, demand rises faster than supply.
Supply chain disruptions: During the COVID-19 lockdowns, there were transport delays, which increased the prices of essential goods.
Global price: If internationally the fuel prices or wheat prices rise, the importing countries will also face inflation.
Government policies: Taxes, subsidies, or restrictions can also lead to an increased price of goods.
If people believe that prices of gold will rise and buy more gold, this can also cause depletion of raw materials, which leads to a rise in prices of gold.
The Impact of Inflation on Everyday:
Groceries: Ravi and Meens’s bill goes up, forcing them to cut back on snacks.
Transport: Higher petrol rates, auto fares, and bus fares.
Housing: Landlords increase rent every year.
Education and Healthcare: School fees and hospital bills rise, due to which Ravi and his family are unable to afford to pay them.
Savings: Money sitting idle can lose its value over time.
The Wider Economic Effects:
For businesses and nations, inflation is a bigger challenge.
Businesses face a higher raw material cost. Small shops may shut down if products are not sold.
Investments slow down as investors fear uncertain returns.
Employment may drop if companies terminate employees.
The Good Side of Inflation:
Economists say that a moderate inflation rate shows that the economy is growing. It motivates people to spend money instead of collecting cash, and the cash has less value later on.
The Downside of Inflation:
Loss of purchasing power: As salaries don’t rise fast, inflation can leave families poorer in real terms.
Inequality: The rich, who own assets and stocks, may benefit, but the poor struggle most.
Businesses cannot plan ahead for uncertainty.
History of Inflation:
India’s 1991 crisis: Inflation crossed double digits as India faced a payment crisis.
Germany in the 1920s: After World War I, prices doubled every few days.
Zimbabwe in the 2000s: Inflation reached millions of percent. Eventually Zimbabwean dollar collapsed.
Argentina: Argentina saves in US dollars instead of using its own currency, “peso”, because inflation makes its currency unreliable.
How the Government tries to Control Inflation:
Monetary Policy: By raising interest rates, the RBI makes loans costlier, which slows down spending.
Fiscal Policy: Governments may cut spending or raise taxes to reduce demand.
Inflation in Today’s World:
After COVID-19, inflation has become a global concern. The Ukraine war pushed up energy prices.
In India, food inflation remains a major issue. The rise in onion or tomato prices often makes it to the headlines, as it affects every household.
In the year 2022, the United States saw the highest inflation in 40 years, with groceries and petrol prices rising.
In Europe, energy costs have skyrocketed as the gas supply has reduced.
Conclusion
Inflation is a human force that shapes our daily lives. It influences the cost of every cup of tea, bus ride, school fee, and hospital visit. A little inflation is necessary for economic growth in the country, but the challenge is balancing growth and keeping prices steady.
So the next time you see any product price rise, remember, it isn’t just a random rise, it is the inflation at work – an invisible story linking your wallet, your country, and the world.
By: R.P.Dharshini
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