Inflation has a tremendous impact on the general population. Though the organised class of employees both in the public and private sectors get some amount of periodical reliefs there is a vast section of the population who have no such benefit. Further there is also large number of retired persons who do not have any pensionary or other retirement benefits. The impact of inflationary pressures is very severe and crushing in the case of such persons.
Consumer price index for industrial workers
Base 2001 = 100
Year Index % Change over Rate of inflation Food
Average base yr prev yr (point to point) inflation
2006 123 23%
2007 131 31% 6.5% 2007 Aug 133 7.26%
2008 141 41% 7.64% 2008 Oct 148 10.45%
2009 157 57% 11.35% 2009 Dec 169 14.97%
2010 176 76% 12.10% 2010 Jan 172 16.22% Feb 27 17.87%
2011 192 92% 9.30% 2011 Nov 199 10.06% Feb3 17.05%
2012 209 109% 8.85% 2012 Dec 219
2013 Aug 237
Most of the Economists and the authorities highlight and discuss only the changes in inflation rates. The cumulative effects of the inflationary conditions are seldom highlighted. The inflation rates only give the percentage increase of the prices over a previous price level which was prevailing a month ago or a year ago. This does not portray a true picture of the price changes. However if we look into the actual Price Index Numbers than we can clearly understand the impact of the price increases over a period of time as shown in the above Table.
The rate of inflation has been continuously on the rise for the past 13 years. The average Index of Consumer prices has shot from the Base of 100 in the year 2001 to 209 in 2012. If simply put this means that if person spent Rs.100 for his living in the year 2001 he would be required to spend Rs.209 in the year 2012, an increase of 109% in 11 years. It can also be seen that the rate of inflation for food products is much higher.
Reasons for Inflationary Conditions
There are several reasons for inflationary conditions in an economy.
Price of any article (unless it is regulated by the government) is basically influenced by the demand and supply of the commodity. If there is more demand than the supply the price of that article will tend to rise. The price will also rise if the cost of manufacture or production increases. The prices can increase even if there is hoarding or monopolistic trade practices which tend to create artificial scarcity conditions.
Inflationary tendencies raise its head due to fiscal conditions prevailing in the economy. When the government spends much more than the revenues it gets from taxes and other incomes it is called as Deficit Financing. To bridge this gap between revenues and expenses Governments resort to Borrowings by issuing various instruments like Treasury Notes, Bonds, loans, etc. Such borrowings tend to increase the Interest rates prevailing in the economy. Hence a huge Budgetary Deficit also leads to inflationary conditions.
MEASURES TAKEN FOR CONTAINING INFLATION
To contain Inflation basically two types of measures are taken. One is the Fiscal Measures to be taken by the Government and the other is the Monetary Measures to be taken by the Reserve Bank of India.
The Fiscal Measures to be taken by the government would include the following:
Reducing the Budgetary deficit by increasing the revenues and reducing the expenses.
Ensuring the availability of essential commodities by properly utilising the reserve stocks available with the Government and distributing them through dedicated retail outlets at reasonable rates
Take strong measures to prevent hoarding of commodities
Controlling the prices of essential commodities
Importing of articles which are in short supply due to shortfall in local production
The Monetary Measures taken by the Reserve Bank of India would include:
Changes in the Deposit and Lending Rates of interest of the Banks
Steps to prevent loans being given by the Banks to hoarderers and black marketers
Ensuring availability of loans for productive purposes
Steps to reduce the Money supply in the Economy
Tag; To understand the full impact of inflation read the detailed article "Bank Depositors - a Discriminated Class" appearing in www.kaushikvichar.com