Why Inflation Isn’t Coming Down

Aditya Rao

There’s a reason inflation the past week rose to 7.61% despite the government trying it’s best to make sure it shouldn’t be that high.

Inflation in India is usually a phenomenon that occurs when the supply of a product is significantly lesser than its demand. But the case today is that you are probably walking into a store, finding an ample supply of what you need and in turn paying more for it!

It’s this sort of inflation that is plaguing India today and it’s clear that it is being caused by reasons other than supply and demand. It’s the same sort of inflation that is plaguing the whole of Asia. In simple terms inflation is being caused because there is too much money being poured into the market. The market will take advantage of this thus hiking the prices of the products it trades, in an effort to make more money.

The government meanwhile cannot afford to ignore inflation simply because this financial year is its election year. People get angry if they have to pay more and they retaliate by not voting the government back into power.

While the finance minister took a standard measure of hiking CRR rates to control it, inflation still rose. Import duties, etc were also changed. All these steps have only minimized the damaged to a very small measure.

The government’s modus operandi right now is to continue using standard measures like adjusting interest rates to control liquidity and hope that inflation dies down while prices stabilize, but this is a method of dealing with India’s conventional inflation problem.

This bout of inflation is one that is being caused by global factors. It’s only now that the government has realized this fact. Evidence of this is can be established by the proportionate rise in prices in food products and commodities in India at the same time prices in crude oil rise.

Oil is an indicator of inflation. People use it as a substitute for the money they can’t invest because prices are high. Gold on the other hand is also an Inflation indicator. While some may argue that both products rise in prices just like other commodities, their rise much before that of the others and at a much faster pace is evident of Inflation.

Prices of both products have increased over the past few months with oil prices crossing an amazing $125 a barrel.

With such complicated factors at play and the government facing a new strain of the inflationary disease for the first time it can only hope that prices stabilize. In reality the government is unclear on what measures it must take to get rid of the inflation and that’s why it hasn’t been able to get rid of this long standing problem even though it has managed to control it.

One good thing going for it is the fact that prices of retail products have risen only marginally but on the other hand prices of essential food crops have risen dramatically. Crops that can be paid for by the well to do but not the government’s primary vote bank: the economically challenged.