Inflation - What the hell is this ?

What is Inflation ?
Inflation say that general level of prices are going up. For eg: A Kg of rice which was brought at Rs.10 some 4 months back is brought at Rs. 20 now. There is an increase in the cost of the commodities. So inflation means that more money need to be paid for the same goods and services. Inflation are measured regularly and this give the economic status of the country. If Inflation is increasing, then there is problem. The common men is buying a product at a higher cost.

Even the counter of inflation is dangerous, The Deflation. Yes, think a common man is paying very less for buying a products. Let say he pay currently Rs 5 per Kg of rice. The producer of the product is not profited. Government will get less money on tax and the money circulation is reduced.

So generally it is good be in a stable prices for a stable economy. Lets get to the actual part. Currently India is under a inflation at 7.33%. So Indian economy, that is we are in problem.

How inflation is caused ?
The reason behind this is because of lot of money in the market. Since the common man is having lot of money there is will to buy goods. Too much money chasing too less goods. So the goods are increasing. ( Yes obviously the producers of the products will check for right time to get profit). So if the will of buying goods is growing faster than amount of goods that have been made, then prices will go up. This most likely happens in economies that are growing fast. Currently we are in growing economy.

Also the higher prices would be due to increase in the crude oil prices which are determined in the West.

What Inflation will cause ?
Inflation have different causes on different set of people in the economy. Obviously the cost of the commodities will increase. So the common men are affected. But think this way, money flow have increased because individual salary have increased. Even if the commodity price have increased, the individual is able to afford it because his salary is increased. But What about the people who live on daily wages. This section are obviously going to get affected. Also People living off a fixed-income, such as retirees, see a decline in their purchasing power and, consequently, their standard of living.

The Producers are gaining currently at increasing inflation but at future they will suffer a bigger loss than the current gain. Goods will be produced at the same rate, while the consumer ( the common men) will reduce to spent due to high rate and he will wait to get the price to lower. So there will instability in the economy on Demand Supply cycle.

If the inflation rate is greater than that of other countries, domestic products become less competitive. Hence the domestic products at the future will start losing to the foreign goods. This will hammer the domestic and small industries in India against the branded foreign goods on prices.

What is happening to stabilize it ?
To add here, one reason which we can say the reason for the inflation is the Union Budget. It had lot of proposal like Farmer loan waiver, Tax exemption which make a lot of money inflow to the consumers. Eventually the consumers are driven to buying the goods at a rather unexpected quick phase. Hence there was a sudden higher inflation.

Both the FM P.Chidambaran and RBI governor Dr. Y.V. Reddy are working on to tighten the money in flow in the Indian economy. The major one of it was RBI have ordered all the banks in India to increase the reserves in each bank. The cash reserve ratio (CRR) which was at 7.5 % have been increased to 8.25%. This change will make sure around Rs. 18,000 crores (not sure of the figure) will be stored as reserves in the bank and the money circulation will decrease. This means the lending for the banks will decrease in this time.

Also Interest rates were reduced. Higher export tax are imposed on basmati rice and steel products and certain import tax are scrapped to safeguard domestic products. Some more policy from RBI would help in getting inflation in a right path.

What is the future ?
What is there in it. The inflation will take some time to settle down. Buying will reduce but not completely. Money flow will get stable, prices will get stabled. Obviously stock market will get back to growth. Once these happen, buying of stocks will happen. So after inflation get settled, then Indian market and economy will be right place for trading.

Every fast growing economy will face a inflation due to sudden money flow. It is how the government tackle it. If tackled without disturbing consumers tendency to buy, then it is going to positive. Wait for the last quarter of year end.

To conclude "Indian Economy is heading in the right path."