INFLATION…. “THE SILENT CREEPER”

Hello Friends here we come up with another write up on “SMC Gyan Series”.

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INFLATION…. “THE SILENT CREEPER”

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Topic is INFLATION…. “THE SILENT CREEPER”

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Here, we would go through the Brief of like what are the impacts of inflation on economy in current scenario and what are the reasons for the inflation?

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It is an alarming situation when the entire world is fighting with this historical economic crisis.

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Inflation is adding additional pressure on government as well as consumers.

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Major contributor of this whopping hike in inflation is food inflation at present context. Mismatch between demand and supply worldwide created chaos and sent prices of many commodities at multi year highs.

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According to the latest data, food inflation rose to 17.47 % for the week ended

November 21, 2009 against 15.58 % in the previous week owing to spiraling prices of

vegetables, pulses and sugar.

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If we talk about overall WPI inflation, it doubled to 1.34 % in October as compared to 0.50 % in the previous month.

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On year on year basis, food prices jumped by 13.32% in October only.

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Rice, pulses, sugar and potatoes, onions were up by 13.22%, 22.81%, 45.70%, 96.43% and 37.60% respectively.

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Reasons for inflation and its impact on economy:

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•  Bleak monsoon coupled with worst drought in nearly four decades in the country situation is haunting the entire economy.

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According to an estimate, India may see a drop of 18% in Kharif crop. It will create further demand and supply mismatch. People will spend less, if prices will move in the same way and ultimately it will affect most of the sector of economy.

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•  To encourage farmers to produce more, government has recently increased the MSP (Minimum support Price) of rice, oilseeds, cotton, sugar and many more.

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Higher MSP immediately pushed the prices up. Though the long term impact of this step will be positive, as more farmers will produce more to get good remuneration.

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•  Hoarding by stockist, farmers in anticipation of further hike in prices is also creating a demand supply mismatch, resulting in higher food inflation.

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•  Government has to compete high with the large scale entry of private players, which procure grains aggressively for biscuits, millers and manufacturers of processed foods.

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•  Declining trend of public investment in agriculture is another concern for government at present.

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Next Blog we would try to know about the possible Measures to check inflation. Stay Tuned for more and more on this

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