Inflation

In simple terms, when there is a rise in general price level of goods and services it is known as inflation. The best example I can give you is, some years back gold flake cigarette (small one) was available at 1.5rs and now the same thing you’ll get in 3.5rs so this shows the inflation which is occurring each and every day and this thing will continue.


Suppose you got a salary hike, now your company will definitely increase the prices of goods and services so that they can satisfy your hunger for money which leads to a kind of inflation or increase in price for the product sold by your company. Ultimately the cycle continues and the prices are increased unless and until there is something wrong with the company or the employee.


If you remember something about the demand/supply thing in economics then we can say, if there is an increase in demand and supply is less or we can say supply is not in sync with the demand then prices of the all “Rashan Pani” is increased, which leads to inflation. Sometimes inflation occurs due to rise in the quantity of money in the market which occurs due to govt spending. and in technical term we say it “Fiscal Inflation”.


Some says inflation is neither very good nor very bad for an economy. Till now, you  might be aware of the bad impact of inflation. I’ll tell you who gets the benefit when inflation occurs.


Suppose Ram is a grocery shop owner (wholesale and retail). Somehow he has got a feel that inflation is going to occur in coming days so he has started purchasing and put all the basic Ration (Rice, Dal, Wheat etc) in his godown with let say20rs/kg on an average. At the time of inflation he sold the same stocked goods at 30rs/kg on an average. We can see, he has got 10rs/kg profit straight forward. Ultimately he is the one who got the real benefit of inflation.


Always remember inflation doesn’t occur due a single reason, there are several things/factors which as a whole cause inflation.


There are several ways through which you can calculate inflation rate. Some calculate it through CPI (Consumer Price Index), some calculate it through WPI( Wholesale price Index). I think this is not the right time to discuss these things, we’ll cover this in coming Posts.