WHAT DO U THINK IS THE MAIN REASON FOR HIGH INFLATION RATE

I wud say the supply constraints combined with increased demand has driven the prices sky-high.The precentage of agriculture land has been steadily reducing in countries like Vietnam,Indonesia.Part of land is turning for real estate and part of it is turned for Jatropha cultivation(Fuel crops).Famine in Australia has also shrinked the global supply.All these factors contributed to the increased inflation.

-Deepak.
 
I THINK THAT MAIN RESON FOR INFLATION ARE FOLLOWING:-
1)DEMAND SUPPLY MISMATCH DUE TO INCREASE IN POPULATION AND DECREASING OF AGRICULTURE LAND.
2)INCREASE IN TRANSPORTATION COST DUE TO INCREASE OF FUEL PRICES.
3)INCREASE IN CONSUMTION BY MIDDLE AND UPPER CLASS AS THEIR EARNINGS HAVE INCREASED IN LAST DECADE.
 
there cannot be one or two reasons for the high inflation.
well for economies growing as fast as ours inflation will be high but the most pressing problem at present is that of the global crude prices as india is basically a net importer of oil
 
Rise in Prices is called Inflation and it effects an economy negatively

Reasons

1. Increase in Demand and fall in supply causes rise in prices.
2. A Growing Economy has to pass through Inflation.
3. Lack of Competition and Advanced Technology (increases cost of production and rise in price)
4. Defective Monetary and Fiscal Policy (In India its fine)
5. Hoarding (when traders hoard goods with intention to sell later at high prices)
6. Weak Public Distribution System
 
Rise in Prices is called Inflation and it effects an economy negatively

Reasons

1. Increase in Demand and fall in supply causes rise in prices.
2. A Growing Economy has to pass through Inflation.
3. Lack of Competition and Advanced Technology (increases cost of production and rise in price)
4. Defective Monetary and Fiscal Policy (In India its fine)
5. Hoarding (when traders hoard goods with intention to sell later at high prices)
6. Weak Public Distribution System
 
i think we lost our way,everybody is in a spending spree like the end of the world is coming tomorrow. everyone wants to enjoy life.the habit of saving for a rainy day has come to be in the past.
 
THE MAIN REASON FOR HIGH INFLATION RATE

High inflation, a rising rupee and increasing interest rates – this has been the scenario of the Indian economy in the last one year (though inflation has been controlled of late). This article attempts to establish a relationship between these observed phenomena. It discusses how one led to the other and how one occurred as a consequence of attempts to control the other.

First let us talk about how the rupee-dollar exchange rate affects our economy and what role does the RBI play in influencing this exchange rate. As a general concept, in a scenario where the rupee is growing stronger against the dollar (or for that matter any other currency), the importers stand to gain as they have to shell out less units of the local currency for each unit of dollar to pay for their imports. On the contrary, the exporters stand to loose as they get less units of the local currency in exchange of their dollar earnings from exports. Another way of looking at the loss to exporters is to observe that as a result of a strong rupee, Indian goods and services become costlier (and hence less competitive) in the international market. On the other hand, the affect of a weak rupee (against the dollar) is exactly the opposite. The RBI in the larger interest of the economy tries to minimize fluctuations in the rupee-dollar exchange rate, by buying and selling in the international currency market. Since it is a big player in that market (as is the central bank of any big economy), it is able to influence the exchange rate by suitably affecting the market forces of demand and supply.

For the last few years, a net positive swing in invisibles (due to increase in software exports and remittances sent by Indians working abroad) and increase in investments (both FDI and FII), has been improving the Balance of Payment (BOP) of the Indian economy and increasing the demand of rupee in the international currency market. In view of this the RBI has been following a policy of buying dollars (by selling rupee) in the international market, thereby avoiding an appreciation of rupee viz-a-viz the dollar. But, the RBI changed its policy some time back. There were several reasons for this. One was that the China was selling dollars to diversify its forex portfolio which was pushing the dollar down and the RBI thought that it might benefit by selling dollars at that stage and buying them later at lower exchange rates. But the single most important reason was the rising inflation in India and the impact it was having on the poor. What was this change in policy and how was it to help contain inflation?

The change in policy was that the RBI decided to stop buying dollars in the international market and allow the rupee to rise (against the dollar). This it believed (and rightly so) would control inflation. The thinking was the following - if rupee appreciates then goods and services which are imported into the country would be available at cheaper prices in the local markets. Moreover as discussed earlier, a rise in rupee will not be favorable for exports. This would divert some of the goods, which were earlier exported, to the domestic markets and hence support the supply side constraints which were one of the reasons for high inflation. So essentially, the RBI decided to marginally compromise the interests of the exporters for the larger good of the economy (specially the poor) by controlling inflation.

Last but not the least, let us discuss how interests rates are related to all this. Taking high domestic interest rates to be a cause, a significant effect is that it checks inflation. Higher interest rates act as incentive for people to keep their money in the bank and as a disincentive for companies to borrow and invest (because the cost of borrowing increases). As a result the money floating in the economy decreases and inflation is curbed. This is the main reason why the RBI signaled its desire to keep interest rates high by raising the rates at which it lends to other commercial banks. Though this mechanism of controlling inflation worked, but at the same time it also encouraged local Indian companies to raise debt from abroad which gave a further upward thrust to the already rising rupee.

This is how high inflation, rising rupee and high interest rates interplayed and affected each other in the last one year with the RBI constantly trying to keep all of them suited for the Indian Economy.


Regards
Ahmed Khan

Source: Inflation, Rising Rupee and High Interest Rates The Times of Change
 
THE MAIN REASON FOR HIGH INFLATION RATE



High inflation, a rising rupee and increasing interest rates – this has been the scenario of the Indian economy in the last one year (though inflation has been controlled of late). This article attempts to establish a relationship between these observed phenomena. It discusses how one led to the other and how one occurred as a consequence of attempts to control the other.

First let us talk about how the rupee-dollar exchange rate affects our economy and what role does the RBI play in influencing this exchange rate. As a general concept, in a scenario where the rupee is growing stronger against the dollar (or for that matter any other currency), the importers stand to gain as they have to shell out less units of the local currency for each unit of dollar to pay for their imports. On the contrary, the exporters stand to loose as they get less units of the local currency in exchange of their dollar earnings from exports. Another way of looking at the loss to exporters is to observe that as a result of a strong rupee, Indian goods and services become costlier (and hence less competitive) in the international market. On the other hand, the affect of a weak rupee (against the dollar) is exactly the opposite. The RBI in the larger interest of the economy tries to minimize fluctuations in the rupee-dollar exchange rate, by buying and selling in the international currency market. Since it is a big player in that market (as is the central bank of any big economy), it is able to influence the exchange rate by suitably affecting the market forces of demand and supply.

For the last few years, a net positive swing in invisibles (due to increase in software exports and remittances sent by Indians working abroad) and increase in investments (both FDI and FII), has been improving the Balance of Payment (BOP) of the Indian economy and increasing the demand of rupee in the international currency market. In view of this the RBI has been following a policy of buying dollars (by selling rupee) in the international market, thereby avoiding an appreciation of rupee viz-a-viz the dollar. But, the RBI changed its policy some time back. There were several reasons for this. One was that the China was selling dollars to diversify its forex portfolio which was pushing the dollar down and the RBI thought that it might benefit by selling dollars at that stage and buying them later at lower exchange rates. But the single most important reason was the rising inflation in India and the impact it was having on the poor. What was this change in policy and how was it to help contain inflation?

The change in policy was that the RBI decided to stop buying dollars in the international market and allow the rupee to rise (against the dollar). This it believed (and rightly so) would control inflation. The thinking was the following - if rupee appreciates then goods and services which are imported into the country would be available at cheaper prices in the local markets. Moreover as discussed earlier, a rise in rupee will not be favorable for exports. This would divert some of the goods, which were earlier exported, to the domestic markets and hence support the supply side constraints which were one of the reasons for high inflation. So essentially, the RBI decided to marginally compromise the interests of the exporters for the larger good of the economy (specially the poor) by controlling inflation.

Last but not the least, let us discuss how interests rates are related to all this. Taking high domestic interest rates to be a cause, a significant effect is that it checks inflation. Higher interest rates act as incentive for people to keep their money in the bank and as a disincentive for companies to borrow and invest (because the cost of borrowing increases). As a result the money floating in the economy decreases and inflation is curbed. This is the main reason why the RBI signaled its desire to keep interest rates high by raising the rates at which it lends to other commercial banks. Though this mechanism of controlling inflation worked, but at the same time it also encouraged local Indian companies to raise debt from abroad which gave a further upward thrust to the already rising rupee.

This is how high inflation, rising rupee and high interest rates interplayed and affected each other in the last one year with the RBI constantly trying to keep all of them suited for the Indian Economy.
 
The rates for inflation seem higher than they actually are..ppl generally switch to substitutes for commodities that get costly. Also we need better measures of inflation...WPI although gives data fortnightly it is by no means accurate.
The bloated figures end up further fueling speculation and hoarding.
 
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