Inflation : The root cause

Petrol prices have risen by 5 to 6 rupees. There have been protests, curfews and other forms of agitation against this decision of the UPA government. I know that the oil prices have risen and cost per barrel has simply skyrocketed leaving the working class citizen with no choice, but to pay more. I was in Lucknow, when the price rise was announced and as my mother and sisters were busy shopping I had ample time to think about the price rise and its consequences. As i traveled through the crowded streets of Lucknow, from one shop to another, like a driver, the fuel price rise started to hit me more. I was stuck at a railway crossing, when the look at a subzi wala (vegetable monger) made me realize that prices of vegetables were about to rice.

The rising fuel prices would increase transportation charges and that would first affect the cost of vegetables coming form the farms to the processing units to the local retailer. The cost of this transport would be recovered from the buyer. The rice of price of virtually all groceries will increase (This increase is long term). This will mean that for a common working man, he will have to spend more, and thus will be able to save less in the process. To compensate for the rice in food prices, the self employed people, like doctors, lawyers and the business class will start charging more. Once your medical expenses increase, your savings would further decrease. You will then demand more from your employer. The company thus then spends more on employees, hence increasing the expenditure of the company. The investors are not happy with increase in the expenditure which reduces the stock price of the company. To compensate, the company charges more from its clients. This causes a ripple effect.The inflation cycle has thus begun.

Looking at the chain of events we can possibly identify the root cause of inflation. The rise of the international oil prices has been the event that has lead to this chain. The big question then become that what triggered inflation. Is it the attack on Iraq by America or the natural cause of fossil fuel exhaustion.In the first case, our foreign policy is responsible, and in the latter one, the failure of efforts to use renewable sources of energy. India’s thermal power plants use non-renewable sources of energy. The failure of the science and technology department has lead us to not use the nuclear reactors to fuel and power the nation. This made us go for the nuclear treaty with United States and thus we indirectly supported them. The integration of all these factory lead to a costlier life. The rich people compensated it by raising their prices, The ones who lost were the middle class people (Service class). A broader look shows that the whole country lost. The event which triggered this loss was an ineffective government. The government, which taxed its citizens and could do nothing but indirectly tax them more and more.

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5 thoughts on “Inflation : The root cause

  1. The hike in price of food items are unbearable. The importance given to IT or any other branch not given to agriculture. The people are not educated to grew vegetables than flowering plants.
    The electricity now the basic of life y cant the research to be progressed aim that self sufficiency in the production of electricity of a home.
    The biogas plants shld be given enough importance which can alleviate much problems.
    the hike starts from basic needs. we cant control international market but we can control our national market.

  2. here the lawyers can play- I think they can do
    there are much government industries not working properly must be handed over to the private concern

  3. inflation is basically due to the taxes ,which is used in development of our country is not provided in due coarse of time by several people

    1. Hi Bhuwan,
      The inflation we are witnessing today is cost based inflation (This post was written more than 3 years back). The government can offset the inflation by easing the taxes. Going by the present scenario, the government seems to be working more on the demand aspect of easing inflation by raising the interest rates thereby reducing consumption. To add to it is depreciating rupee and increasing oil prices.My knowledge on this subject is quite limited so it is possible that I may be wrong in assessing the present situation on inflation, but if I have interpreted your statement correctly, efficient use of taxes by reducing corruption can hugely impact the economy. I have written about this here (http://www.domainofhope.com/2011/12/jan-lokpal-bill-chaos-theory.html)
      You can read it to understand my perspective on it. Thanks for sharing your view

      Best Wishes,
      Sushant

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