Since last month there was a dramatic jump in the prices of food items especially vegetables like onions because of the persistent struggle with massive food inflation. This is also true that India has already lost billions of dollars due to inflation in the past few years. The Indian rupee touched record low of 65.56/dollar and is down 16 percent so far this year. This is the right time to discus about inflation and its impact.
Inflation is known as A sustained rise in the prices of commodities that leads to a fall in the purchasing power of a nation. Inflation in India is rated as 5.8 percent as per the latest reports from ministry of commerce and industry. An average inflation rate was 7.72 from 1969 to 2013 with highest rate of 34.68% in 1974 and very low rate -11.31 in 1976. These rates are considered on the basis of wholesale price index (WPI).
Several internal external factors are caused for the high inflation rate and fall down of rupee and it will affect the economy in a great way. The reasons for inflation of such as the printing of more money by the government, a rise in production and labor costs, high lending levels, a drop in the exchange rate, increased taxes or wars, can cause inflation.
Inflation impacts like rising prices adversely affect the economic conditions of fixed-income groups, particularly wage earners. Inflation encourages speculation, blackmoney, storage of essential commodities which creates surplus in the market and results in high prices.