What is Inflation ?
Inflation is a rise in prices, which results in a decline in purchasing power over time. To put it simply, goods and services increase in price at a rate faster than the increase in earnings of the people. Due to the action of market forces on the market, the cost of living is increased while the earnings is reduced.
Rajesh used to have a monthly expenditure of ₹15,000 on household essentials in January 2022 and a salary of ₹25,000. From the month of September, Rajesh is having a monthly expenditure of ₹16,500 for the same purchases as in Jan 2022, while his salary remains at ₹25,000. This increase in ₹1,500 for the same household items is due to inflation in which the cost price of goods increase.
There are many products that become expensive:
Fuel – Fuel is primary factor which becomes expensive during inflation becoming the cause for an increase in all commodities requiring transportation.
Fruits and Vegetables – Whenever there is an inflation, there is an increase in the prices of fruits and vegetables, especially non-local fruits and vegetables.
Groceries – Grocery items such as rice, dal, sugar, salt etc, face an increase in prices.
Dairy – Milk and other dairy products such as paneer, cheese, ghee see a sharp increase in prices with the onset of an inflation.
FMCG – Personal care products such as body soaps, shampoo, toothpaste as well as household cleaning products such as floor cleaners, utensil liquid and the likes face the brunt of inflation.
Real Estate – There is an increase in prices of real estate both in the commercial sector as well as in the residential sector. Rental value also increases.
Computers and Electronics – There is a crunch in the supply of electronic components such as semi-conductors, chip shortages and increased manufacturing costs making electronics expensive.
How is inflation measured ?
Inflation is measured by measuring the price indexes. The most popular indexes are the Consumer Price Index and Wholesale Price Index. The consumer Price Index is an index of the cost of consumer products required in the daily existence of consumers. The Wholesale Price Index is a macro factor which marks in prices at the wholesale level before the product reaches the end consumer.
Can anyone benefit in inflation ?
While the common man suffers the burden of inflation, market players who are holding property or have stock of commodity can see an increase in the value of stock and assets in their possession.
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