Recent cases of inflation are not only negatively affecting India but also worsening the situation of other countries around the world.
Current inflation is a mix of demand-pull, cost-push, and internal inflation. AFP
For the last 2-3 months, most people have been talking about inflation. The government’s April 2022 cost inflation (CPI) data also shows that the inflation rate is 7.9 percent, which creates unrest in the public. The general public is more concerned about the exponential rise in the prices of vegetables, fruits, grains, cooking oil and oil. Let’s look at the phenomenon.
There are basically three types of inflation:
Demand-Driven Inflation This is due to intense demand and insufficient supply. This type of inflation is caused by increased consumer confidence, the growth of the economy, the circulation or speed of money, easy credit from the banking sector, heavy government expenditures and tax cuts, and high consumer expectations that create demand in the market. In summary, the excess money supply in the market creates demand in the market and the supply decreases, which causes inflation in the market.
Cost-Push Inflation It is the situation where input costs such as raw materials and other inputs such as wages increase the cost of production and the final selling price becomes more costly. Such a type of inflation results from an increase in the exchange rate resulting in more expensive imports. The main causes of cost inflation are money printing and devaluation, high input costs, increased taxation and high public debt resulting in monopoly or duopoly in a few sectors.
Internal Inflation It is the gradual increase in inflation with the passage of time. As every year, the increase in wages raises the cost of the product, while on the other hand, the worker creates demand as a result of the increase in wages. Such a type of inflation is considered necessary for the growth of the economy.
Recent cases of inflation are not only negatively affecting India but also worsening the situation of other countries around the world. We are witnessing the defeat of Sri Lanka due to hyperinflation. A few people – call them left-wing economists or anti-establishment, whatever the nickname – scare the public with statements, articles or tweets that India is also entering an era of hyperinflation. These are people who see only one side of the coin. The chart that includes the previous eight-year average inflation and the last two-month average inflation of major economies is as follows. This chart has been prepared from the World Bank/IMF data, and the expected rate has been taken into account when there is no data for the current month.
It is clear from the table above that inflation has become a universal principle in the last two months. The EU, United Kingdom, United States, France and other countries that had low inflation in the previous decade are now experiencing hyperinflation. If we compare inflation data with other countries, India offers well. In the calculation of inflation, the main items such as food and grocery, electricity and fuel, and basic metal, chemical and chemical products, machinery, textiles, etc. Three main components are taken into account, namely the finished products consisting of items. is part of this group.
Current inflation is a mix of demand-pull, cost-push, and internal inflation. The COVID-19 stimulus packages from the Indian government have resulted in the highest ever cash circulation in India which is currently over Rs 31 lakh crore. Similarly, India is primarily an importer and as a result of uncertainties in the Russia-Ukraine conflict, inflation in other major supplier countries, fuel, metals, chemicals, etc. While it affects the cost of inputs negatively, it increases inflation. . The value of the rupees against the dollar also contributes to cost inflation. Because India is still developing, it spends heavily on subsidies, the poor and the poor, whose usual resident inflation also sharpens the inflation saga.
The Reserve Bank of India has recently increased the base rate and CRR by withdrawing Rs 1 lakh crore from the market and it is hoped that further decisions can be made such as increasing the base rate by 1 percent and increasing the CRR and SLR. At the Monetary Policy Committee (PPK), which is planned to be held in the first week of June,
In addition to monetary policy targeting demand-pull inflation, cost inflation can be combated with the joint efforts of the public and government. The government is procuring crude oil from Russia as rubble to control the rising price of fuel all over the world at the expense of diplomatic relations with developed countries. The government should also take more steps to transact with other countries in currencies other than the dollar because our rupees have become stronger relative to other major currencies other than the dollar. This fact can be deduced from a comparative list of exchange rates of various currencies:
For the public to turn to domestic products, for the current account balance to remain within an acceptable limit and for our currency to become stronger. They should also avoid requests for subsidies or free materials so that money can be spent on capital goods to create employment. As long as the Russia-Ukraine conflict continues and the supply situation remains normal, this inflation will continue in the short run.
Mukesh Kabra is a Surat-based Certified Public Accountant who has been working for 25 years. Yuvraj Pokharna is an independent journalist and columnist. The views expressed are personal.