INFLATION IN INDIA
Inflation is a key economic indicator that reflects the rate at which the general level of prices for goods and services rises, eroding purchasing power. In India, inflation holds significant importance due to its direct impact on the cost of living, economic stability, and policy decisions. The country has experienced varying inflation rates over the decades, influenced by multiple factors including supply chain disruptions, monetary policies, and global economic conditions.
India measures inflation primarily through two indices: the Consumer Price Index (CPI) and the Wholesale Price Index (WPI). The CPI measures the average change in prices paid by consumers for a basket of goods and services, and is the primary gauge of inflation for the Reserve Bank of India (RBI) when setting interest rates. The WPI, on the other hand, measures the average change in prices at the wholesale level.
Inflation in India can be broadly classified into several types based on its causes and effects. Understanding these types helps in identifying the underlying factors driving price increases and in formulating appropriate policy responses.
Demand-pull inflation occurs when the aggregate demand in an economy surpasses aggregate supply, leading to an increase in prices. It is often described as too much money chasing too few goods. Key drivers of demand-pull inflation include:
1.Increased Consumer Spending: Higher disposable incomes or consumer confidence can lead to increased spending.
2.Government Expenditure: Expansionary fiscal policies, such as increased government spending on infrastructure projects or social programs, can boost overall demand.