The world economies including India are recuperating from the COVID traumatism. Due to the coercion on worldwide crude prices and supply-side bottlenecks, all the substantial economies are encountering extraordinary domestic inflationary pressures leading to the destruction of economic growth.
Taking off worldwide rough costs and basic stockpile deficiencies may poorly affect growth and development as well as inflation.
As of April 2022, the worldwide price of crude had already jumped up to US $103/bbl. Besides worldwide crude, the global food value price index and costs of significant essential metals and other basic information sources have likewise risen. Income, prices, individual preferences and beliefs, cultural traditions, as well as geographical, environmental, social, and economic factors all interact in a complex manner to shape dietary consumption patterns.
Driven by flooding global crude and commodity prices and supply deficiencies of condemning inputs, India as well as many developed nations are now battling with high expansion levels which are constraining them from raising domestic interest rates.
The hike in prices in the US is being directed by several factors. Primarily, the pandemic-related improvement bundle has had an inflationary effect. Then, the rising input costs and production chain disturbances in the midst of rising interest and a tight work market have prompted vertical tension on inflation. Finally, there are more huge underlying elements, for example, geographical and a reverse in globalization adding to the rising pattern in inflation.
The consumer price index inflation rate in India shot up to a 95-month high of 7.8% in April 2022. In fact, the Wholesale price index inflation has inclined to be even more excessive than the CPI inflation in recent months. It was at an unmatched level of 15.1% in April 2022.
In a comparative outlook, India is expected to be more effective in the short-to-medium term. Its forecasted growth in FY23 is 8.2% as per IMF and 7.2% according to RBI. The ADB has projected India’s growth at 7.5% in FY23, rising to 8% in FY24 based on the continuous momentum of infrastructure expenditure.
Crude oil prices were the biggest contributors to the rise in inflation because it accounts for more than 40 percent of the total CPI index. India imports nearly 80 percent of the crude oil for the country's demand.
In any case, India may not stay unaffected by the curbed worldwide growth possibilities. Many developed nations are contemporarily battling high inflation which is constraining them from raising domestic interest rates. This might prompt a growth lull and at times, even a recession.
In the medium term, India is projected to show the most noteworthy development rate up to FY28. Its development rate is supposed to be well over the world average and that of China. Following are some of the consequences of high inflation:
Due to the rise in prices, the economy will slow down. Consumers looking to make major purchases find this a challenge. Since most need credit to make a major purchase, this slows down the economy.
The most obvious impact of inflation is the loss of purchasing power. As purchasing power erodes, many feel the impacts on their budget. But those on a low income or fixed income often feel the pinch the most.
The Federal Reserve has a relatively limited toolkit to tame inflation. And the option they turn to first is usually raising interest rates. As the Fed pushes interest rates higher, it gets more expensive to borrow money.
To tackle this situation of inflation, some measures can be taken such as:
A contractionary monetary policy is one common method of managing inflation. A contractionary policy aims to reduce the money supply within an economy by lowering the prices of bonds and rising interest rates. Thus, consumption falls, prices fall and inflation slows down.
Government spending, public borrowing, and taxes comprise the Fiscal Policies to Combat Inflation. Keynesian economists often referred to as "Fiscal" argue that demand-pull inflation is induced due to an excess of aggregate demand over aggregate supply. Fiscal policy and fiscal initiatives are thus effective weapons of demand-pull inflation management.
References:
1. Dugal, I. (2022, December 21). Analysis: India’s post-COVID spending boom drives a two-speed economy. Reuters.
2. Dugal, I. (2022, December 21). Analysis: India’s post-COVID spending boom drives a two-speed economy. Reuters. my: Economic Survey. The Indian Express.
3. Reed, J., & Lin, A. (2022, July 27). India’s roaring post-pandemic recovery at risk from inflation. Financial Times.
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