In January of this year, retail inflation, which has been rising since September of last year, reached 6.01 percent.
The Consumer Price Index (CPI) tracks retail inflation, which analyzes price increases from the perspective of a retail buyer.
Wholesale inflation is measured at the producer level and is tracked by the Wholesale Price Index (WPI).
WHOLESALE INFLATION
Meanwhile, according to government data released on Monday, India’s annual wholesale price-based inflation increased to 13.11 percent in February from 12.96 percent the previous month.
EXPORTS GROW
Meanwhile, according to a PTI report, India’s exports increased by 25.1 percent to USD 34.57 billion in February, owing to strong development in industries such as engineering, petroleum, and chemicals, even as the trade deficit worsened to USD 20.88 billion.
What are the four different kinds of inflation?
When the cost of goods and services rises, this is referred to as inflation. Inflation is divided into four categories based on its speed. “Creeping,” “walking,” “galloping,” and “hyperinflation” are some of the terms used. Asset inflation and wage inflation are two different types of inflation. Demand-pull (also known as “price inflation”) and cost-push inflation are two additional types of inflation, according to some analysts, yet they are also sources of inflation. The increase of the money supply is also a factor.
What are the three different types of inflation?
- Inflation is defined as the rate at which a currency’s value falls and, as a result, the overall level of prices for goods and services rises.
- Demand-Pull inflation, Cost-Push inflation, and Built-In inflation are three forms of inflation that are occasionally used to classify it.
- The Consumer Price Index (CPI) and the Wholesale Price Index (WPI) are the two most widely used inflation indices (WPI).
- Depending on one’s perspective and rate of change, inflation can be perceived favourably or negatively.
- Those possessing tangible assets, such as real estate or stockpiled goods, may benefit from inflation because it increases the value of their holdings.
What Does Inflation Imply?
Inflation is defined as the rate at which prices rise over time. Inflation is usually defined as a wide measure of price increases or increases in the cost of living in a country.
What is the difference between retail and wholesale inflation?
In November, wholesale inflation, as assessed by the wholesale price index, reached 14.2 percent, the highest level since 1991. In contrast, retail inflation, as assessed by the consumer price index, is at a more manageable 4.9 percent.
Not only do the two indices imply vastly different amounts of inflation, but their paths have also diverged. While WPI inflation has been on the increase since the middle of the year, retail inflation has been stable.
Why is retail inflation on the rise?
According to figures issued by the National Statistical Office (NSO), food inflation in January 2022 was 5.43 percent, up from 4.05 percent the previous month.
Inflation is rising over the world, including in India, but price increases have been moderate by historical standards, allowing the central bank to keep interest rates constant for the time being.
Despite this, prices of everyday items such as tea, cooking oil, and beans have risen by 20% to 40% since the start of the COVID-19 pandemic.
Fresh crop arrivals, supply-side interventions, and the expectation of a favourable monsoon are projected to keep CPI inflation well below its upper tolerance threshold, at 4.5 percent, in the next fiscal year beginning April 2022, according to the Reserve Bank of India.
The hardening of crude oil prices, on the other hand, poses a significant upside risk to the inflation outlook.
“The reading for inflation was in line with our forecasts. The Reserve Bank of India (RBI) was also anticipating a figure in the upper range. The trajectory, on the other hand, is projected to have peaked in January. “More importantly, RBI’s own H2 FY23 predictions remain closer to 4%, albeit lower than our estimates, indicating that policy changes are not warranted,” said Upasna Bhardwaj, senior economist, Kotak Mahindra Bank, Mumbai.
“Today’s inflation print is projected to be around 6%,” RBI Governor Raghuram Rajan said earlier on Monday. So that shouldn’t come as a surprise or raise concern since we’ve factored that in.”
“If you look at inflation momentum from October onwards, from last October onwards, inflation momentum is on the downward path,” Shaktikanta Das stated.
Das said core inflation remains elevated at tolerance-testing levels as he unveiled the final monetary policy for the current fiscal year on Thursday. Although, he said, the continued pass-through of tax cuts for gasoline and diesel, which began in November, would assist to alleviate input cost pressures to some extent.
In December, retail inflation reached a five-month high of 5.59 percent, up from 4.91 percent in November, owing primarily to an increase in food costs.
The MPC has been given the task of keeping annual inflation at 4% through March 31, 2026, with a maximum tolerance of 6% and a minimum tolerance of 2%.
“Despite a month-on-month decrease in prices, the increase in inflation in December was completely due to an unfavorable base impact.” Large grain buffer stocks and effective supply-side initiatives bode positively for future food inflation.
Core inflation is still high, but demand pull forces are low. The continued rise in international crude oil prices, on the other hand, must be constantly monitored, according to RBI Governor Shaktikanta Das.
“Given the continued slack in demand, the transmission of input cost pressures to selling prices remains modest.” Further, as the threat of the Omicron (virus) fades and supply-chain pressures ease, core inflation may weaken.
“On balance, the inflation prediction for 2021-22 is kept at 5.3 percent,” Das added, “with Q4, the present quarter, at 5.7 percent due to an unfavorable base effect that eased later.”
What are the two most common forms of inflation?
Keynesian economics is defined by its emphasis on aggregate demand as the primary driver of economic development, despite the fact that its modern interpretation is still evolving. As a result, followers of this tradition advocate for government intervention through fiscal and monetary policy to achieve desired economic objectives, such as increased employment or reduced business cycle instability. Inflation, according to the Keynesian school, is caused by economic factors such as rising production costs or increased aggregate demand. They distinguish between two types of inflation: cost-push inflation and demand-pull inflation, in particular.
What are the five factors that contribute to inflation?
Inflation is a significant factor in the economy that affects everyone’s finances. Here’s an in-depth look at the five primary reasons of this economic phenomenon so you can comprehend it better.
Growing Economy
Unemployment falls and salaries normally rise in a developing or expanding economy. As a result, more people have more money in their pockets, which they are ready to spend on both luxuries and necessities. This increased demand allows suppliers to raise prices, which leads to more jobs, which leads to more money in circulation, and so on.
In this setting, inflation is viewed as beneficial. The Federal Reserve does, in fact, favor inflation since it is a sign of a healthy economy. The Fed, on the other hand, wants only a small amount of inflation, aiming for a core inflation rate of 2% annually. Many economists concur, estimating yearly inflation to be between 2% and 3%, as measured by the consumer price index. They consider this a good increase as long as it does not significantly surpass the economy’s growth as measured by GDP (GDP).
Demand-pull inflation is defined as a rise in consumer expenditure and demand as a result of an expanding economy.
Expansion of the Money Supply
Demand-pull inflation can also be fueled by a larger money supply. This occurs when the Fed issues money at a faster rate than the economy’s growth rate. Demand rises as more money circulates, and prices rise in response.
Another way to look at it is as follows: Consider a web-based auction. The bigger the number of bids (or the amount of money invested in an object), the higher the price. Remember that money is worth whatever we consider important enough to swap it for.
Government Regulation
The government has the power to enact new regulations or tariffs that make it more expensive for businesses to manufacture or import goods. They pass on the additional costs to customers in the form of higher prices. Cost-push inflation arises as a result of this.
Managing the National Debt
When the national debt becomes unmanageable, the government has two options. One option is to increase taxes in order to make debt payments. If corporation taxes are raised, companies will most likely pass the cost on to consumers in the form of increased pricing. This is a different type of cost-push inflation situation.
The government’s second alternative is to print more money, of course. As previously stated, this can lead to demand-pull inflation. As a result, if the government applies both techniques to address the national debt, demand-pull and cost-push inflation may be affected.
Exchange Rate Changes
When the US dollar’s value falls in relation to other currencies, it loses purchasing power. In other words, imported goods which account for the vast bulk of consumer goods purchased in the United States become more expensive to purchase. Their price rises. The resulting inflation is known as cost-push inflation.
What impact does inflation have on businesses?
Inflation decreases money’s buying power by requiring more money to purchase the same products. People will be worse off if income does not increase at the same rate as inflation. This results in lower consumer spending and decreased sales for businesses.