If you are having to increasingly pay more for your groceries at your neighbourhood kirana store or a swanky department store, chances are that you have been hit by inflation.
Measured by the Wholesale Price Increase Index (WPI), inflation indicates the broad-based level of prices of goods and services in an economy. Little wonder then that the figure is crucial to both economists and policy makers.
Ideally, if salaries increased at the same rate as inflation, there would be no hardships. Unfortunately, inflation is not an across-the-board price increase. Prices of different commodities increase at different rates at different times, affecting different sections of the population.
With the government set to announce inflation data for August 2012 today (14 September 2012), these five facts will guide you through how inflation affects the common man.
1) Purchasing power of the rupee falls -- a Rs 50 note, which you could use to buy a kilogram of rice, will now fetch only half a kilogram.
2) Commodity wholesaler dealers, such as rice dealers at mandis, may try and hoard essential commodities like food grains on hopes of reaping profits when prices increase further on dwindling supplies.
3) Fixed income groups will be hit the hardest because their salaries will not be revised to include the cost of living even as prices of items soar.
4) Household as well as national savings drop because there is less money to save now as people use a greater part of their disposable income to pay for daily-use commodities.
5) Retail investors owning stocks of inflation-sensitive companies such as automobiles are likely to see the stock prices fall on low sales as people prefer to not spend money on “luxury” items, sticking instead to the “necessities”.
The better news:
A higher rate of inflation can make repaying loans easier because they can end up paying back less money if the interest rate is lower than the rate of inflation.
...economy in the world. In simple words, inflation is the rise of general level of prices. However, inflation is a much more complex phenomenon than simply the increase of prices. Inflation (or general inflation) is also identified with the fall of market value of money within a particular economic system. However, some economists prefer to use the term inflation to describe a rapid increase in money supply in a single economy. Generally, this is the main cause of the increase of prices. “There is no opinion better established, though it is seldom consistently maintained, than that the general scale of prices existing in every country, is determined by the amount of money which circulates in it,” wrote Thomas Joplin in his writing Views on the Subject of corn and Currency in 1826. History An examination of historical examples, including Weimar Germany, 1970s Argentina, 1980s Brazil, post-Vietnam America, and China, can prepare an economy facing the threat of present-day inflation and teach its participants what to avoid and what can be done.The effects that inflation causes can weaken an economy to the point of collapse. Inflation and hyperinflation can have a tremendously negative affect on an economic society as seen in post World War II Germany (The Weimar Republic), 1970's Argentina, 1980's Brazil, post Vietnam War in America and the Peoples Republic of...