Inflation is often one of the most misunderstood economic indicators. While inflation is broadly understood as the general rise in the prices of goods and services year on year, inflation is a more complex phenomena associated with the money supply and currency values. An increase in the money supply, or currency in circulation in simple terms, leads to a decrease in the value associated with the currency – a persistent decrease in the purchasing power of money. This decrease in the value increases the prices of goods and services, i.e., more of the currency is required to buy the same goods and services as compared to the prior year.
Inflation in India has seen a drastic rise over the last few years, with consistently over 5% inflation rate (measured by annual change on consumer price index) since mid 2006 – a matter of concern for the common man as well for the government trying to rein in the high inflation. According to December 2009 monthly report released by Department of Economic Affairs, “Year-on-year inflation measured in terms of WPI for December 2009 at 7.31 per cent showed an acceleration of 253 basis points compared to November 2009.” The reasons for these high numbers have been many folds, most important of these being the rising demand for goods and services owing to the fast growing economy leading to a systematic inflation. Other factors include high commodity prices, rise in global inflation levels due to a shortfall in supply to meet the demand of growing economies, growing money supply due to increase in government spending and the pressure to meet deficit financing, increase in wages and tax rates leading to increase in overall prices for goods and services, among others.
For detailed analysis of the reasons affecting inflation growth in India, refer to the following PPT on inflation.
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Read an article on the Inflation Survival Guide in India
{ 3 comments… read them below or add one }
what actions are taken by the government to reduce inflation rate?
Actually, It is not always govt. to be blamed for everything, there are some parts by the public to be played, the inflation rate has increased because there is lot of demand for the commodities, it has become like people cannot survive even with the abscence of small things also.eg., the petrol rate is hiked only because there is a lot of demand for it, a person travelling in cycle, buys a motor cycle, a person travelling in motorcycle buys a car, and it continues.
So it is in our hands to bring down the inflation rate by minimising the buying of lot of unwnted stuff from the market.
inflation is the biggest concern for the investors. The way it is growing, i think it will touch near about 10% level in India by next two months. the retail investors are not getting the required returns and govt should do something to control the inflation I have read a good article in the website called http://www.want2rich.com. i am sharing a link http://www.want2rich.com/2011/05/personal-finance/inflation-a-worry-for-retail-investors-as-it-reduces-investment-options-and-return/. Please read that, i think it is a helpful.