- Retail inflation accelerated to a five-month high of 7.41% in September, from 7% in August, as food inflation surged sharply to 8.41% last month — the steepest level in 22 months.
- September’s retail inflation was the highest since April, when price rise quickened to an almost eight-year high of 7.79%, and economists warned that the latest negative surprise could force the Reserve Bank of India (RBI) to opt for further interest rate increases beyond the widely expected 0.5 percentage point increase in the December monetary policy.
- This is the ninth month in a row that inflation has exceeded the 6% upper tolerance threshold mandated for the RBI and would require it to send an explanation to the government on its inability to achieve the price stability target.
- Rural inflation picked up further steam, from 7.15% in August, to touch 7.56% in September, while urban consumers also experienced a resurgence in price rise at 7.27%, from 6.72% a month earlier, data released by the National Statistical Office (NSO) on Wednesday show.
Vegetable prices surge
- Inflation in cereals quickened to 11.5%, with rural India facing almost 12% price gains, up sharply from 9.6% in August and almost doubling from July’s 6.9% pace. Similarly, vegetables’ inflation almost virtually doubled over two months, from 10.9% in July to 18.1% in September, with urban consumers facing a sharper 20.1% rise.
What is Inflation?
- In economics, inflation (or less frequently, price inflation) is a general rise in the price level of an economy over a period of time.
- When the general price level rises, each unit of currency buys fewer goods and services; consequently, inflation reflects a reduction in the purchasing power per unit of money – a loss of real value in the medium of exchange and unit of account within the economy.
- As per RBI, an inflation target of 4 per cent with a +/-2 per cent tolerance band, is appropriate for the next five years (2021-2025).
Types of Inflation
The different types of inflation in an economy can be explained as follows:
This type of inflation is caused due to an increase in aggregate demand in the economy.
Causes of Demand-Pull Inflation:
A growing economy or increase in the supply of money – When consumers feel confident, they spend more and take on more debt. This leads to a steady increase in demand, which means higher prices.
- Asset inflation or Increase in Forex reserves– A sudden rise in exports forces a depreciation of the currencies involved.
Government spending or Deficit financing by the government – When the government spends more freely, prices go up.
- Due to fiscal stimulus.
- Increased borrowing.
- Depreciation of rupee.
- Low unemployment rate.
- Effects of Demand-Pull Inflation:
- Shortage in supply
- Increase in the prices of the goods (inflation).
- The overall increase in the cost of living.
This type of inflation is caused due to various reasons such as:
- Increase in price of inputs
- Hoarding and Speculation of commodities
- Defective Supply chain
- Increase in indirect taxes
- Depreciation of Currency
- Crude oil price fluctuation
- Defective food supply chain
- Low growth of Agricultural sector
- Food Inflation
- Interest rates increased by RBI
Cost pull inflation is considered bad among the two types of inflation. Because the National Income is reduced along with the reduction in supply in the Cost-push type of inflation.
This type of inflation involves a high demand for wages by the workers which the firms address by increasing the cost of goods and services for the customers.
SOURCE: THE HINDU, THE ECONOMIC TIMES, PIB