Inflation in India

Topics: Inflation, Economics, Consumer price index Pages: 4 (800 words) Published: May 5, 2012
1. Introduction:

1.1. Inflation – General Definition:
Inflation indicates the rise in price of a basket of commodities on a point-to-point basis [1]. Inflation is caused by a persistent increase in the prices of goods and services. Inflation measures the increase in the cost of living over a period of one year. For example, if a set of commodities bought in January 2000 cost Rs 100, and the same set of commodities bought in January 2001 cost Rs 110, and then the inflation rate is 10%. The Inflation rate is considered to be high if it is more than 5%. On the contrary if the prices of commodities decline consistently then it leads to deflation. Both inflation and deflation are detrimental to a country’s economy, and hence inflation must be kept moderate in a developing nation.

1.2. Inflation in India:
India suffers with maximum inflation compared to chief markets. From the last two years India is trying to bring down the inflation rate but all the efforts are in vain. Started with the hike in food prices, inflation now has a strong foothold in the Indian economy. The consequence is that the hiked price is now considered as the “new normal” in an economy which has had subsidised prices since independence. To counter this Reserve Bank of India (RBI) has raised lending rates numerous times since March 2010.

The rate of inflation is measured by The Wholesale Price Index (WPI) [1] in India. The WPI is accessible for all types of commodities which help to keep a check on price conditions. The RBI formulates policies in terms of WPI.

1.3. Influence of Inflation in Normal Day-to-Day Life:
The rise in inflation results in the increase in economic uncertainty. Compared to the developed economies, the cost may rise up more in India because of inflation. The impact of inflation is more on the society the lower class and the middle class. This is further aided by the...
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