Inflation is nothing but the general price rise of goods and services. It has been a topic of debate and concern in India as well as around the world. Inflation seriously affects everyone, from housing to groceries to health. In 2023, the inflation rate in India has been fluctuating throughout the year. Both businesses and individuals have been seriously concerned with inflation. Let’s explore and analyse various aspects, trends, contributing factors, and their impacts.
Understanding the inflation rate in India
A general price rise of goods and services over a certain period is known as inflation in the economy. Due to inflation, your money loses its purchasing power over time, indicating it gets to buy fewer things as time passes. CPI or Consumer Price Index measures inflation in India. It tracks price changes in essential goods and services consumed by households.
Current Inflation Trends in India
As of Oct 2023, retail inflation in India was at 4.87%, after a decrease from its peak of 7.80% in May 2023. Several factors have contributed to this decrease, such as:
Easing Global Commodity Price
Easing commodity prices internationally has brought down domestic inflation in India.
The government also had a role to play in this. They have taken useful measures like supply-side interventions and excise duty cuts which helped the cause.
A high base effect from last year also significantly lowered inflation in India in the second half of 2023.
What are Some Primary Factors behind Inflation in India?
There are a few contributing factors that will impact the inflation rate in India 2023. Despite the current downward trend in inflation, below are some factors that continue exerting pressure on inflation.
Several global factors impact inflation in India. For example, the ongoing war between Russia and Ukraine is one such factor that disrupts the global supply chain to directly and indirectly affect commodity and energy prices in India.
Various domestic factors, like rising transportation costs and varying agricultural production, increase inflation in India.
With the increase in consumer demand and economic recovery, inflation is bound to increase for obvious reasons.
How Inflation Can Impact Businesses and Individuals?
Inflation can affect both businesses and individuals in many ways.
Due to inflation, a business is likely to face higher input costs. It can affect their competitiveness and profitability.
Inflation erodes the purchasing power of an individual. As a result, people find it challenging to afford essential goods and services and lead their lives comfortably like before. Things get tougher for low-income individuals.
On the other hand, inflation also puts policymakers in a tight position as they struggle to balance between supporting economic growth and controlling inflation.
Managing the Inflation
The Reserve Bank of India (RBI) is responsible for maintaining the price stability of commodities and goods in India. RBI, in this aspect, utilizes several tools described below.
The RBI can adjust credit availability and interest rates to control economic activity and inflation.
Open Market Operations
RBI is to buy and sell government securities to control liquidity and influence interest rates effectively.
Resolving supply chain disruptions and increasing agricultural production is to control inflation to a certain level.
The fiscal policies of the Government can affect inflation to a great extent. This is an essential factor in managing the inflation.
Responsible spending habits and awareness of consumers are to help mitigate the impact of inflation in the best way possible.
The inflation rate in India is a significant issue for everyone, whether individuals or businesses. No wonder inflation keeps fluctuating throughout the year due to several contributing factors. In recent months, inflation in India has been lower for various reasons. India is on the way to becoming an economic superpower. So, one needs to understand the careful considerations regarding inflation.