Thursday, Sep 16, 2021 10:00 [IST]
Last Update: Thursday, Sep 16, 2021 04:26 [IST]
Rising inflation has always burnt holes in the common man’s pockets. What the aam Janata sees as simply a general rise in prices. It is far more complicated than that. Whatever the science or maths behind, it is always the common man who suffers.
To enable the people to meet their daily needs of consumption of goods and services when their prices are rising, their incomes must rise if they have to maintain their standard of living. For government employees, their dearness allowance is increased. Wages and salaries employed in the organised private sector are also raised, though after some time- lag.
But people with fixed incomes and those who are self-employed are unable to raise their prices and suffer a lot due to inflation. The poor suffer the most from persistent rise in prices, especially of food-grains and other essential items. And the Covid induced pandemic since the last one and half years have added more fuel to the inflation fire.
On the other hand, deflation represents persistently falling prices. Inflation or persistently rising prices is a major problem in India today. When price level rises due to inflation the value of money falls. When there is a persistent rise in price level, the people need more and more money to buy goods and services.
On the brighter side, India's retail inflation eased to a four-month low in August on softer food prices as supply side constraints eased following the lifting of pandemic-related restrictions. Government data released on Monday showed that consumer prices rose 5.3% from a year earlier, slower than July’s 5.6% rise.
August’s drop should come as a relief for RBI, which has been looking through elevated inflation levels in Covid times on the premise that it’s only “transient" and needs no policy action to reduce. As Covid constraints ease, according to RBI, so will supply bottlenecks that had turned various prices volatile. If the next few readings show a similar easing, the central bank can be said to have got it right. However, inflation risks remain high. Red-hot commodity prices, for one, could cause it to heat up. As the second-round effects of high fuel costs begin to show up in the prices of other goods, which usually happens with a lag, price pressures could intensify. Thankfully, abundant monsoon rainfall should help keep food inflation in check. However, this must not permit complacency. Should RBI continue to look the other way, it could risk unhinging inflation expectations, potentially with long-term economic repercussions. We need a sustained vigil.