Growing Cost of Living and Inflation

By Deepak Maurya
Inflation

India’s diversified population is significantly impacted by inflation, a crucial economic indicator. It is the rate of increase in the average cost of goods and services, which lowers the buying power of money.

The International Monetary Fund defines inflation as the rate at which prices rise over a specific time period. Usually, inflation is measured broadly, as in the case of a country’s cost of living increase or general price increase. However, it may also be computed more precisely for some products, like food, or services, like a haircut. Inflation, in any context, is the measure of the increase in the cost of the relevant set of products and/or services over a given time frame, usually a year.

The impact of inflation is particularly noticeable in India because of the country’s enormous population and economic differences.

Causes of Inflation

  • Demand-pull inflation (1990s onwards): Real estate, cars, and consumer electronics were more in demand as India welcomed foreign investments and urbanization, boosting disposable incomes along the way thanks to the middle class and IT boom. Demand increased, and prices increased accordingly.
  • Cost-push inflation: During international oil crises, India’s reliance on oil imports drives up fuel prices. Prices for products and services are impacted by these expenses, which affect the entire economy. Rising costs for gasoline and diesel affect the public.
  • Built-in inflation: A wage-price spiral can occur when corporations boost prices to cover increasing wage costs due to salary hikes that different worker sectors demand and get.
  • Supply chain disruptions: The monsoon season is crucial to the agriculture industry. Food costs may rise and agricultural shortages may result from insufficient rainfall. Situations like the COVID-19 pandemic in 2020 caused supply chain disruptions, leading to brief inflationary pressures across some industries.

Consequences of Inflation

The effects of inflation extend far into people’s daily lives and have an impact on both macro and local economies. Certain of these effects are amplified and more tangible for India’s large population because of the country’s complex and varied socioeconomic structure. Let’s examine the effects of inflation from an Indian perspective:

  • Reduced Purchasing Power: The Indian population is greatly affected by inflation, particularly the growing middle class. During times of high food inflation, staple foods like lentils become pricey, forcing households to make dietary adjustments as their purchasing power declines. It is now tangible to distinguish between hunger and nourishment for those economically marginalized and daily wage workers as a result of this shift.
  • Uncertainty: India’s small and medium-sized businesses (SMEs), including those in the brass and textile sectors, are vulnerable to inflation. Lower consumer spending results in fewer orders, which impedes investment and the development of jobs. In certain situations, it even results in layoffs.
  • Financial Strain on Households: Most Indian households do not have inflation-adjusted incomes. Costs increase in an inflationary environment, placing a financial burden on families. This may result in families skipping necessary treatment due to growing medical expenditures, or youngsters quitting school owing to overwhelming educational fees. These circumstances highlight the significant effect that inflation has on Indian families.

Impact on Cost of Living

There is a clear and significant correlation between inflation and the cost of living. The expense of living always rises when inflation shows its head. The impact may be profound and wide-ranging for a country like India, where socioeconomic gaps are extreme. Let’s examine how inflation affects the cost of living in India, using information from reliable Indian sources:

  • Housing: In India, housing costs are heavily impacted by inflation. Rent, mortgages, and property upkeep are examples of housing expenditures that grow in tandem with the prices of goods and services due to inflation. In large cities, where the expense of housing is already a significant financial burden for many, inflation may make the problem of affordability worse. Particularly low- and middle-class households find it more difficult to obtain affordable accommodation as growing inflation reduces their purchasing power.
  • Food: Data on the cost of staple foods is routinely released by the Ministry of Consumer Affairs, Food, and Public Distribution. Price increases for basic foods like rice, wheat, and pulses have a direct impact on what the average person eats. An ongoing topic of discussion in homes and the media is the price of onions, a basic ingredient in Indian cooking.
  • Transportation: As was previously indicated, India is vulnerable to changes in the price of crude oil due to its significant reliance on imports. PetrolPriceToday and other websites show how often gasoline costs fluctuate in different Indian cities. This impacts not just the owners of vehicles but also the everyday commuters who must pay more for public transit as a result.
  • Healthcare: For many people, especially those without health insurance, access to high-quality healthcare becomes increasingly unattainable as inflation raises the cost of medical services, hospital stays, prescription drugs, and consultation fees. Growing healthcare costs put a heavy strain on individuals and families, sometimes resulting in financial hardship and, in certain situations, compelling people to forgo essential medical care.
  • Education: Indian Context: Many Indian families have expressed worry over the growing expense of education, from elementary to tertiary education. The average yearly private spending on general education in India is not well-documented. However, between 1995–96 and 2017–18, the average annual household expenditure for education increased significantly, from Rs. 1149 to Rs. 6024 for primary education and Rs. 1529 to Rs. 6866 for upper primary education, according to a study published in the International Journal of Creative Research Thoughts. Compared to rural areas, parents in metropolitan areas devote a larger percentage of their education expenditure to test and tuition fees. In contrast to urban regions, a larger portion of the budget is allocated to books, stationery, and uniform costs in rural communities.

Methods for Handling Inflation: An Indian Perspective

To properly negotiate the problem of inflation, cautious methods are needed. This is a brief synopsis of coping techniques, based on funding sources and Indian experts:

  • Budgeting: Budgeting tools are available through mobile banking and digital finance applications like PhonePe and Paytm. During inflation, apps like ETMONEY and Walnut are essential for tracking and organizing expenses.
  • Investing wisely: Investment opportunities are available on the Indian stock market, NSE’s Nifty, and BSE’s Sensex. Investing in mutual funds that target inflation-resistant industries and real estate in developing regions is a wise move. Sites like the Economic Times and Moneycontrol offer insightful information.
  • Locking in Prices: Fixed-price plans in the housing industry and prepaid choices for cellphone recharges help protect against price increases during inflation.
  • Staying informed: Timely economic updates are available on websites such as CNBC-TV18, Business Standard, and Livemint. The Reserve Bank of India (RBI) provides information about the likelihood of inflation.
  • Diversifying Income Sources: Investigate independent contractor options and web resources like Upwork and Internshala to diversify your sources of income in times of inflation.
  • Leveraging Government Schemes: For reasonable yields and tax advantages, make use of savings plans such as the National Savings Certificate (NSC), Public Provident Fund (PPF), and inflation-indexed bonds.

Government Role

It is a difficult job that governments and central banks mostly handle to control inflation. The RBI and the government are crucial institutions in India.

  • Monetary Policies: To curb inflation, the RBI modifies the repo rate. Lowering the repo rate encourages investment and expenditure while raising it counteracts inflation by reducing liquidity.
  • Cash Reserve Ratio (CRR): By modifying the CRR, the RBI retains more money, lowering the amount of money available for loans and investments and reducing inflation.
  • Fiscal Policies: To control inflation, the government modifies taxation and expenditure. we are lowering taxes on necessities and offering commodity subsidies to keep prices stable.
  • Supply Chain Interventions: Programs like the Pradhan Mantri Gram Sadak Yojana enhance the infrastructure of the supply chain, guaranteeing that items reach markets on schedule and lowering waste and price increases.
  • Strategic Reserves: The government keeps strategic stockpiles of necessities, such as food grains during lean harvests, to stabilize prices during shortages.
  • Trade Policies: Depending on domestic output and pricing, import and export policies are altered to maintain an adequate supply of goods.

Conclusion

The growing cost of living and inflation go hand in hand in the swing of economics. Although most economies experience inflation from time to time, people and society as a whole may overcome its obstacles if we are aware of its sources, impacts, and available resources. A thorough grasp of inflation is not only helpful but also necessary as we navigate the seas of the present economic situation.

Sources

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