A brief on inflation

It is a bonanza for energy investors, as India faces a crisis in coal due to accelerated demand post-pandemic and heavy rains lashing out the coal-bearing areas affecting the supply chain.

But why?

Inflation is the answer.

What is inflation?

Inflation is the rise in the prices of goods and services in an economy. Inflation measures the rate at which the price of basic commodities increases over a period. Factors that drive inflation are many. Simply put, an increase in demand or production cost of goods and services results in inflation. Besides, some circumstances contribute to price raises due to a surge in demand or production.

They are:

  • Money loses its purchasing power when there is increased circulation of currency.
  •  Natural disasters such as floods, rains, hurricanes also drive prices higher.
  •  Low unemployment rates and high wages escalate consumer spending, depreciating the value of money.
  • And government can ease the fiscal policy to expand the amount of discretionary income for customers and businesses. This will encourage the consumers to spend more on the purchase of goods and services resulting in inflation due to higher demand for commodities.

Nevertheless, if inflation leads to higher prices of essentials such as food, basic clothing, etc., it can destabilize the economy,which in turn will have a damaging effect on society.

Who monitors inflation?

The Central bank of economies keeps a check on the rate of inflation. In India, the RBI is responsible to monitor the rate at which prices of consumer goods are increasing, while the inflation rate of the country is calculated by the Ministry of Statistics and Program Implementation.

Who are the beneficiaries of inflation?

Investors reap the benefit if they have invested in the market affected by inflation. On occasions, companies tend to hold stocks to create an artificial demand allowing prices to inflate. However, government and Central Bank interfere and regulate business to save the consumers from exploitation.

The current status:

Days after RBI projected the Consumer Price Index -CPI inflation at 5.3% in the Monetary Policy meeting, the IMF cautioned India against inflationary pressures and recommended a slow reduction in monetary policy support as economic revival is gaining momentum.

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