Genesis and Resumption: The Inflation
Inflation influences almost everything around us- our food, our clothes, our work, and even our politics; are all around inflation. We all know that inflation is the increase in prices but there is much more to it. Before we explain it further, first let us look at its history.
History of Inflation
For some reason, the 20th century can be named as “The Era of Inflation”. Normally when you encounter the term inflation, what do perceive actually? Well as a Lehman one will simply just say the hike in the prices, or when means of living becomes costlier.
Initially,
in the early 19th century, inflation was considered as a process of
making an addition to the currencies i.e., the change in the proportion of
currency in circulation relative to the amount of precious metal that
constituted a nation’s money. But the definition of the term changed over time
as per the different phenomena given by various economists.
The Inflation
Inflation
is nothing but the consequence of persistent rises in the general price level.
When there’s a moderate rise in the prices, it is considered as a growth in the
economy, but the instant it starts exceeding beyond the limits, that hike in
the price is termed as inflation. In other words, the consequence of the
imbalance between the quantity of money and trade needs.
The Paradox
of the Great Inflation
There always remains this cycle of inflation and deflation. Whenever there’s inflation or even deflation, the central authority/bank of the respective country considers the policies either fiscal or monetary in order to normalize that imbalance. Or even often economy by itself normalizes that effect. But because of some inconsonant circumstances, like war or pandemic or any other reason there comes a situation when that inflation somehow got out of control and leads to a situation of great inflation.
The Case studies
1.
Zimbabwe
Highest
monthly inflation: 79,600,000,000%
Prices
doubled every: 24.7 hours
Year:
2008
Reason:
Series of land redistribution programs that transferred land from the country’s
ethnically European farmers to ethnic Zimbabweans in the 1990s resulted in damaging
the country’s capacity for food production, suddenly dropping supply far below
demand and raising prices as a result.
Aftermath:
With prices almost doubling every 24 hours, when the $100 million bill was
introduced, prices soared, leading to the price for just a loaf of bread from
$2 million to $35 million rising overnight. The government even declared
inflation “illegal” at one point, eventually leading to the arrest of the
executives of companies for raising prices on their products.
The
situation became so dire that shops in the country simply began refusing the
currency and the US dollar, as well as the South African rand, became the
de-facto medium of exchange.
2.
Sri Lanka
Inflation
Rate: 17.8%
Year:
2022
Reason:
Lack of foreign reserves, pandemic, Russia-Ukraine war, poor governance, and
sudden ban of synthetic fertilizers and pesticides severely hitting the
country's farm production.
Aftermath:
The prices of essential items in Sri Lanka have drastically increased. The
price of a kg of rice was ₹290, and that of sugar is ₹240 in March 2022.
Citizens
have to stand in long queues for hours even to get essentials. From people having
to face daily power cuts of more than seven hours in the scorching heat to the
administration recently having to cancel the school examinations because the country
failed to import paper, due to fewer reserves.
The Scenario
in India-
India
has not remained untouched by the Inflation. Between 1973 and 1974 the great
inflation that too of 16.941 to 28.599% which is an all-time high, till now was
experienced.
During and post-pandemic there is an immense hike in the prices as has never been experienced before. The inflation rate in 2020 was 6.623 which is actually quite high too.
Conclusion
Inflation
has such an impact on our lives that our awareness can help us to understand
the price movements around us. In a democratic country like India, such
information would help a citizen keep track of the government policies and
also, hold leaders accountable so that situations don't go out of hand as
happened in the above case studies.
Also, inflation is unavoidable. If inflation is too low, it means people do not have enough money to buy things! The prices are too low because suppliers are not getting customers. They have no option but to sell at whatever price they get, the goods you can buy with.
One thing we must understand is that in developing countries like India, there will be some inflation. Hence, ₹100 today, you would not be able to do it next year because its price would rise. One of the ways you can beat the price rise is by increasing your money. Returns on your investments should beat the inflation rate.
References:
- https://globalfinancialdata.com/the-century-of-inflation
- https://www.federalreservehistory.org/essays/great-inflation
- https://data.worldbank.org/indicator/FP.CPI.TOTL.ZG?locations=IN
- https://www.imf.org/en/News/Articles/2015/09/28/04/53/sp040606
- https://cnb.cx/3jsnkWv
- https://blogs.worldbank.org/voices/return-global-inflation
- https://bit.ly/3O6yDkW\
- https://blog.finology.in/economy/inflaion-in-india-fiscal-policy
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