{"id":114682,"date":"2021-06-25T11:05:13","date_gmt":"2021-06-25T05:35:13","guid":{"rendered":"https:\/\/blog.forumias.com\/?p=114682"},"modified":"2021-06-25T11:05:13","modified_gmt":"2021-06-25T05:35:13","slug":"adverse-impacts-of-rising-inflation","status":"publish","type":"post","link":"https:\/\/forumias.com\/blog\/adverse-impacts-of-rising-inflation\/","title":{"rendered":"Adverse impacts of rising inflation"},"content":{"rendered":"\n<p><b>Synopsis<\/b><span style=\"font-weight: 400;\">: <\/span><span style=\"font-weight: 400;\">A rising inflation level adversely impacts the purchasing power of the consumer and discourages lending activities in an economy. India is currently observing an upward trend which may induce RBI to alter its accommodative stance and tilt towards a stricter monetary policy.<\/span><\/p>\n<h5><b>Background<\/b><span style=\"font-weight: 400;\">:<\/span><\/h5>\n<ul>\n<li style=\"list-style-type: none;\">\n<ul style=\"list-style-type: disc;\">\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">RBI has not intervened on high inflation since the onset of the pandemic in order to support growth. It has kept the repo rate unchanged at 4% for more than a year.\u00a0<\/span><\/li>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">But the current spell of inflation is over a high base and a continuation of recent trends will persuade it to turn the focus back on inflation.<\/span><\/li>\n<\/ul>\n<\/li>\n<\/ul>\n<h5><b>Inflation levels<\/b><span style=\"font-weight: 400;\">:<\/span><\/h5>\n<ul>\n<li style=\"list-style-type: none;\">\n<ul style=\"list-style-type: disc;\">\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">Until April this year, only wholesale inflation (WPI) was on the rise, led by fuel and commodity prices. But in May, even retail inflation (CPI) picked up.\u00a0<\/span><\/li>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">CPI inflation crossed the RBI\u2019s upper limit of 6 percent after five months. A rise in inflation was observed on both, month-on-month and year-on-year basis.\u00a0<\/span><\/li>\n<\/ul>\n<\/li>\n<\/ul>\n<h5><b>Impact of Rising Inflation<\/b><span style=\"font-weight: 400;\">:<\/span><\/h5>\n<ul>\n<li style=\"list-style-type: none;\">\n<ul style=\"list-style-type: disc;\">\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">It hurts<\/span><b> lenders and benefits borrowers.<\/b><span style=\"font-weight: 400;\"> For instance, the government stands to benefit as it is the biggest borrower. Rising inflation will lower the national debt load in relation to the size of the economy as it enhances the nominal GDP of a country.<\/span>\n<ul>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">The value of past debt and debt servicing costs gets decreased in real terms as inflation rises.<\/span><\/li>\n<\/ul>\n<\/li>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">It reduces <\/span><b>purchasing power and hits private consumption.<\/b><span style=\"font-weight: 400;\"> In the present context, inflation is likely to hit private consumption in rural areas more than in urban areas.<\/span>\n<ul>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">This would happen as overall food CPI inflation was lower than non-food inflation since the last past five months.\u00a0<\/span><\/li>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">This indicates that what agriculturalists typically sell is rising at a slower pace than what they do not produce, and have to buy from the market.<\/span><\/li>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">It is an opposite situation from last year when a normal monsoon, a bumper crop, and high food inflation in wholesale and retail markets added to rural incomes.<\/span><\/li>\n<\/ul>\n<\/li>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">It puts <\/span><b>severe stress on producers of goods<\/b><span style=\"font-weight: 400;\">, especially a rise in WPI level. While producers seem to be bearing a part of the burden of rising input costs for now, these could get <\/span><b>passed on in greater measure to consumers<\/b><span style=\"font-weight: 400;\"> once demand recovers.<\/span><\/li>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">Rising inflation<\/span><b> reduces returns on fixed income instruments<\/b><span style=\"font-weight: 400;\">, including bank deposits, which account for over 50 percent of households\u2019 financial savings.\u00a0<\/span>\n<ul>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">This has already induced a shift to riskier asset classes such as equities, which has<\/span><b> ramifications for overall financial stability<\/b><span style=\"font-weight: 400;\">.<\/span><\/li>\n<\/ul>\n<\/li>\n<\/ul>\n<\/li>\n<\/ul>\n<h5><b>Way Ahead<\/b><span style=\"font-weight: 400;\">:<\/span><\/h5>\n<ul>\n<li style=\"list-style-type: none;\">\n<ul style=\"list-style-type: disc;\">\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">The RBI will have to closely monitor inflation trends and calibrate its policy response.<\/span><\/li>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">Further given the need for monetary policy to stay accommodative, it might be time to consider other supply-side interventions. For instance, the government can cut excise rates on petroleum products to soften the inflation blow.<\/span><\/li>\n<\/ul>\n<\/li>\n<\/ul>\n<p><b>Source<\/b><span style=\"font-weight: 400;\">: <a href=\"https:\/\/indianexpress.com\/article\/opinion\/columns\/its-time-for-rbi-to-turn-its-attention-to-inflation-7372814\/\" target=\"_blank\" rel=\"noopener\">Indian Express<\/a><\/span><\/p>\n","protected":false},"excerpt":{"rendered":"<p>Synopsis: A rising inflation level adversely impacts the purchasing power of the consumer and discourages lending activities in an economy. India is currently observing an upward trend which may induce RBI to alter its accommodative stance and tilt towards a stricter monetary policy. Background: RBI has not intervened on high inflation since the onset of&hellip; <a class=\"more-link\" href=\"https:\/\/forumias.com\/blog\/adverse-impacts-of-rising-inflation\/\">Continue reading <span class=\"screen-reader-text\">Adverse impacts of rising inflation<\/span><\/a><\/p>\n","protected":false},"author":61,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"jetpack_post_was_ever_published":false,"footnotes":""},"categories":[1230,8043,9],"tags":[3571,3337,3572,3254],"class_list":["post-114682","post","type-post","status-publish","format-standard","hentry","category-9-pm-daily-articles","category-current-affairs-cat","category-public","tag-financial-stability","tag-inflation","tag-monetary-policy","tag-wholesale-inflation","entry"],"jetpack_featured_media_url":"","views":{"total":0,"cached_at":"","cached_date":1704312542},"jetpack_sharing_enabled":true,"_links":{"self":[{"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/posts\/114682","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/users\/61"}],"replies":[{"embeddable":true,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/comments?post=114682"}],"version-history":[{"count":0,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/posts\/114682\/revisions"}],"wp:attachment":[{"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/media?parent=114682"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/categories?post=114682"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/tags?post=114682"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}