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Whats Inflation ?
Inflation is a rise in the general level of prices of goods and services over time. "Inflation" is used to refer to a rise in the prices of some specific set of goods or services, as in "commodities inflation".
Headlines in TIMES OF INDIA 15th August 08 Inflation continues rising hits 12.44% th August 08 PM panel 14 pegs inflation at 13%
Causes Of Inflation
1. 2. 3. 4.
EXTREME IMBALANCE OF GLOBAL ECONOMY FUEL PRICE HIKE HIGHER INTERNATIONAL FARM PRICES FOOD PRICE HIKE
First, there is the impact of high fuel prices, which affect agricultural costs directly because of the significance of energy as an input in the cultivation process itself (through fertilizer and irrigation costs) as well as in transporting food. Across the world , governments have reduced protection and subsidies on agriculture, which means that high costs of energy directly translates into higher costs of cultivation, and therefore higher prices of output.
Effects of Inflation
Economic Effects : The impact of Inflation on the economic system may be classified into 3 kinds 1) Effects on production (that is changes in the routine of economic activity)
2) Effects on income distribution (that is , re-distribution of income and wealth) 3) Effects on the consumption and welfare .
Effects on production
Inflation has a favourable effect on production when there are unutilised or under-employed resources in existence in an economy . Rising prices breed optimistic expectations within the business community, in view of increasing profit margins, because the price level moves up at a faster rate than the cost of production.
FUEL HIKE
Fuel Hike has taken its toll on the common man. Inflation has forced the government to hike the fuel prices by approximately Rs 6/Ltr and LPG gas by Rs 50/Cyldr. This years fuel hike is the highest fuel hike recorded in the Indian history . LPG which is the essential necessity of every house is on a low supply and not meeting its demands even after the hike . A Common man just cannot survive with so many odds going against him .
With most of Indias vast population living close to or below the poverty line, inflation acts as a Poor Mans Tax. This effect is amplified when food prices rise, since food represents more than half of the expenditure of this group.
Inflation widening the gap between the rich and the poor
Inflation in a country creates a breeding ground for social upheavals. Inflation re-distributes income and wealth in favour of the rich, and widens the gap between the rich and the poor . Inflation favours the rich and the black marketers . The rich and the business class get ample chances of making profit through unfair means , while the poor people indirectly suffer the social sins done by the rich and the manipulating business class. Thus the rich become richer and the poor become poorer during inflation .
EMPHASIS ON BIOFUEL
With petroleum product prices rising steadily; diesel alone has become 25 per cent costlier over the last year. Apart from the search for alternatives, it is the need to achieve energy independence that is directing so much focus on biofuels and the crops that will help yield these oils.. If sugar mills are being encouraged to produce ethanol from sugarcane for blending with petrol, efforts are on to cultivate such crops as jatropha and pongamia, which yield oil that can either be blended with diesel or used independently. The problem of the huge oil import bill and the price uncertainty can be mitigated by cultivating biofuel crops on the over 60 million hectares of wasteland available in the country.
Inflation is unjust because it affects different classes of people in the society in different ways and in different degrees. If inflation were to affect everyone in the society in exactly the same manner and to the same the degree, it would not alter the economic and social relationships in the community. But inflation takes away wealth from some people and transfers it to others on a random basis without taking into consideration the sound maxim of social equality.