Inflation
Inflation is an upsurge in the level of prices of the goods and services in an economy, which leads to a decline in the purchasing power of the currency’s value. It is calculated as the rate of change in prices in a specific period of time. The consumer price index (CPI) is one of the most common indicators for measuring inflation in an economy.
Factors that Impact Inflation Rate
Some of the major factors affecting consumer prices are government policies, money supply, consumer spending, employment levels, high disposable income, and wage levels. Interest rates can also have a significant impact on spending on consumer goods.
Global Inflation
Global inflation is a measure of the average annual rate of growth increase in national prices across all countries. It can be calculated using various methods including simple average, weighted average, and median price change. GlobalData forecasts that the world economy will grow at a slower pace of 3.5% in 2022 following a 5.9% growth in 2021. The global inflation rate is projected to rise to 6.5% in 2022 from 3.5% in 2021, due to supply chain disruption amid the Ukraine-Russia war.
Consumer Price Inflation in India
Between 2010-2021, the consumer price inflation in India was highest in the year 2010, reaching 12%. India reported a sharp decline in the inflation rate in 2014.
Consumer price inflation was by 6.6% in 2020, compared to 3.7% the previous year. In 2020, the COVID-19 pandemic and lockdown has created disruption in terms of demand and supply. Higher unemployment has reduced demand for nonessential goods and services, whereas supply chain constraints have had an upward push on food prices.
According to GlobalData, inflation averaged 4% during 2016–2019. The inflation rate increased to 6.6% in 2020 amid the pandemic. The reduction of excise duties and state level taxes could provide some relief to consumers, along with the recent easing of international crude prices.
Rising Inflation and Interest Rates:
As a result of rising inflation rates in both developing and advanced economies, central banks have been forced to tighten monetary policy and raise interest rates to keep prices from rising. However, a steady increase in interest rates could cause financial distress in some economies.
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