Inflation - Types, Causes, Effects and Solution - ECO Project

INTRODUCTION

Inflation means “a rise in the general price level in the economy”. We all are familiar with the word “inflation“.
There are three major types of inflation:
Demand-pull inflation: inflation caused by increases in aggregate demand due to increased private and government spending, etc. Demand inflation is constructive to a faster rate of economic growth since the excess demand and favoUrable market conditions will stimulate investment and expansion.
Cost-push inflation: also called "supply shock inflation," caused by drops in aggregate supply due to increased prices of inputs, for example. Take for instance a sudden decrease in the supply of oil, which would increase oil prices. Producers for whom oil is a part of their costs could then pass this on to consumers in the form of increased prices.
Built-in inflation: induced by adaptive expectations, often linked to the "price/wage spiral" because it involves workers trying to keep their wages up (gross wages have to increase above the CPI rate to net to CPI after-tax) with prices and then employers passing higher costs on to consumers as higher prices as part of a "vicious circle." Built-in inflation reflects events in the past, and so might be seen as hangover inflation.




INFLATION IN INDIA

The Indian economy has been registering a mammoth GDP growth post-liberalization. The opening up of the Indian economy after the 1990s increased India's industrial output, which in turn raised the inflation India rate significantly. Inflation in India remains much lower than in many other developing countries. But prices are rising more than twice as fast as in China, India's chief rival for foreign investment and economic leadership among emerging markets. Prices are also increasing considerably faster than in industrialized countries. Well, this term is certainly one of the hottest topic of debate and thus the topic of my project. The rate of inflation has sky-rocketed up to 12% which is very high and quite dangerous for our economy. Similar situations were experienced way back in 1995, and again this buzzword has become a major concern of the government. Though inflation is desirable at lower rates the shooting up of prices of all types of goods by such a huge percentage is proving to be an alarming situation for the government to tackle.

Measuring inflation is a difficult task for which a number of goods from the economy are taken together which represents the “market basket”. The cost of this basket is compared over time to find out the rate of inflation. In India basically 2 methods are followed to calculate inflation:
1. Consumer price index (CPI)
2. Wholesale price index (WPI)
Wholesale price index (WPI) is more popular and widely used price index.




GENERAL VIEW ON THE RISING INFLATION

It is clear that international factors are boosting inflation more than domestic factors. A steep rise in the price of oil, gas and steel, the basic requirements of any industry has caused the majority part of the recent inflation. Indirectly being the basic raw materials these commodities have lead to the increase in prices of almost all goods. Oil prices were about $140 a barrel which is more than twice the previous year’s price.


Also it is a general view of the people that the government should have taken adequate steps to tackle the problem of the rising oil prices because it was well known in advance that the oil prices were about to surge higher. The sharp rise in the petrol prices is seen by the people as a harsh step taken by the government and it was received by a series of protests all over the country. People all over the country were protesting against the hike in petrol prices announced by the government little realizing that the government is helpless as it is already suffering a loss of crores of rupees by supplying petrol and diesel at subsidized rates.

Many economists are of the opinion that such a sharp rise in the oil prices is completely baseless and the powerful nations of the world should have talks with the oil producing Middle-east countries regarding the rise in prices. Some feel that a way to reduce these prices is to increase oil production. Few of the oil producing nations of the world have decided to increase the annual production of oil in order to bring down the rising oil prices under control.



MY VIEW ON RISING INFLATION IN INDIA

It is true that India is facing a very undesirable rate of inflation. But this type of inflation is being caused due to international factors like rising prices of oil and steel. This inflation is killing the purchasing power of the people. Basic necessities are surging high on their price index. Vegetable prices have almost doubled. The reason is rising crude oil and steel prices all over the world. Though people are blaming the government, its not completely in the hands of the politicians to control this type of inflation. This world runs of scarce resources which will finish one day and this is just a glimpse of the threatening resource-less future. This inflation is not only being experienced in India but in most of the countries around the globe, though this is being made a political topic to blame each other.

But it is high time for people of our country to realize that the government alone can’t do anything. The rising inflation is a global issue. It is not that only India is facing the problem of the rising food prices. Countries all over are confronting this problem of how to tackle this rising inflation. We all should understand that the government alone cannot do anything. The government is suffering a loss of crores of rupees by supplying petrol and diesel at subsidized rates for the betterment of the society. The step taken by the government to raise he petrol and diesel prices recently was met by protests all over the country but we should understand that the government is also helpless. It is supplying us fuel almost one-third price at which it is purchasing them. We all will be benefited with this rise in petrol and diesel prices in the future indirectly.

In India we have a problem of pointing fingers at others, blaming others is not a solution to the problem. Same problems are being faced by countries like China and Brazil. Inflation rate is about 12% in China and 95 in Brazil. No government can handle scarcity of resources. This is a problem which can only have a temporary solution because one day the resources have to finish and as it happens the price will go higher and higher. India is not the only country facing this crisis and problem. So I believe that it’s a common problem which needs group effort for the solution, instead of blaming the government.




CONCLUSION

I believe that it is not right for us to lay the blame on the government for this rising inflation. What we can do is cut down consumption, use economic means for any kind of work, realize the need of the future and take each and every step after thinking twice. For example we can cut down our fuel demands, use renewable energy, use environment-friendly technologies, reduce wastage, work co-operatively, utilize resources in efficient and optimum manner, etc.

Wastage of resources like crude oil and steel should be avoided as they are providing the main thrust to the prices of almost all the products. The rise in the food prices is mainly due to the rising crude oil prices. Thus the main root lies in the high crude oil prices. So in order to bring the situation under control we should first of all avoid fuel wastage and food wastage. A few laws and acts cannot handle the situation. We ourselves have to work from the grass root level to avoid future damages All this cannot be done by the government by passing a few laws in this sphere. It is not possible until we ourselves realize and become ready to be a part of this fight against the rising inflation. So the government needs our cooperation. It is our own country and our own problem. Government is nothing but the people. We should put aside all this blaming business which is going on from quite a long time now and should do something ourselves.