Ever wondered why the price of a particular product was not as same as before and keeping on increasing?
Inflation is a change in the price of goods and services over a period of time,
Inflation is measured in terms of percentage.
If prices of goods and services are getting cut down then this is called “Deflation”. Deflation occurs When the Inflation Rate falls below 0%.
What Causes Inflation?
Based on the Research the Economists Classified the reason for inflation mainly into Three main drivers:
1. Cost-push inflation:
When the prices of Raw materials that are used in Manufacturing a product goes high and that leads to an increase in the production cost and Finally the making of the product is increased. Now the manufacturing companies to keep some profits they increase the price of the product.
Not only Raw materials are the reasons for cost-push inflation, something that increases the production cost which leads to an increase in the price of the product.
Let’s go through an example
The cosmetic company is manufacturing a product using chemicals, When the price of these chemicals gone up, Manufacturing price of the product is gone up, This leads to increase in the price of the Product
2. Demand-pull inflation:
Let's go through an example
There are only 20 kgs of tomato in the supermarket and many people want to buy a tomato, Let’s consider 50 people are trying to buy a tomato, Here the stock available is only 20 kgs of tomato and need is more, Then the supermarket owner increase price Here comes the concept inflation it cost 10 rs due to the demand it price gone to 50 rs per kg this is Demand-pull inflation.
As more people have money to afford these products, prices go up.
3. Built-in inflation:
As the price of a product goes up, that leads to an increase in the Cost of Living.
so workers demand higher wages, to reach their cost of living. Those higher wages in turn drive up the cost of production, which increases your cost of living.
It’s a never-ending cycle.
Let’s go through an example
Mr.Tom has allocated 5000rs for the groceries for a month, but the inflation rate causes the cost of groceries to rise, he would have to increase his grocery budget to afford the same items. In Mr. Tom’s case, the inflation rate would compel him to either increase his grocery budget or decrease his groceries’ quantity and/or quality. That’s why the inflation rate plays a critical role in how you budget your lifestyle and plan for the future.
Economist believes some sort of inflation is good for Economic growth of the country.
What to calculate Inflation?
Formula: (b-a)/a *100
b- present price
a- past price
let’s go through an example, Price of petrol in August is 100rs per liter And in September the same petrol costs around 108rs per liter.
(108–100) is 8 and 8/100 that is equal to 0.08 and 0.08*100 =8%
there is 8% of inflation in petrol price.