Inflation and Purchasing Power

Topics: Inflation, Money, Central bank Pages: 4 (866 words) Published: October 7, 2013
Inflation – Impact on Indian Economy &
Agriculture
Savneet Kaur
Abstract— Inflation is the rise in the prices of goods and services and affects all the major sectors in an economy. Inflation also reflects erosion in the purchasing power of money – a loss of real value in the internal medium of exchange and unit of account in the economy. In a country like Indian where a majority of population is working in agriculture sector, the effect of inflation increases manifold. This paper aims to put light on the impact of inflation on Indian agriculture and then give some suggestions for the improvement of the economy. Index Terms— Food inflation, Inflation, Indian economy, Indian agriculture, monetary policy, macro & micro economics, RBI policy. —————————— 

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An Introduction:
Inflation is a rise in the general level of prices of goods and services in an economy over a period of time.When the
general price level rises, each unit of currency buys fewer goods and services. Consequently, inflation also reflects
erosion in the purchasing power of money – a loss of real value in the internal medium of exchange and unit of
account in the economy.
The Indian method for calculating inflation, the Wholesale
Price Index, is different from the rest of world. Each week, the wholesale price of a set of 435 goods is calculated by the Indian government. Since these are wholesale prices, the
actual prices paid by consumers are far higher.
In times of rising inflation, this also means that the cost of living increases are much higher for the populace. Due to
increasing prices, people have to spend more to maintain
the standard of living. So, inflation is eating up the savings of an average man.
With most of India’s vast population living close to or
below the poverty line, inflation acts as a ‘Poor Man’s Tax’. This effect is amplified when food prices rise, since food
represents more than half of the expenditure of this group.
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