In this article, we will discuss Reasons for Current Increasing Inflation in India. So, let’s get started.
Reasons for Current Increasing Inflation in India
- Inflation in India cannot be described just as ‘cost-push’. Abundance of liquidity has been an important factor.
- The April Monetary Policy statement talked of a liquidity overhang of the order of ₹8.5 lakh crore.
- Beyond a point, inflation itself can hinder growth. Negative real rates of interest on savings are not conducive to growth. If we want to control inflation, action on liquidity is very much needed with a concomitant rise in the interest rate on deposits and loans.
- The high rate of inflation in March 2022 is primarily due to rise in prices of crude petroleum and natural gas, mineral oils, basic metals, etc. owing to disruption in the global supply chain caused by the Russia-Ukraine conflict.
- On the other hand, the retail inflation rose mainly on account of rising prices of essential food items like ‘oils and fats’, vegetables and protein-rich items such as ‘meat and fish’.
- As per the CPI data, inflation in ‘oils and fats’ in March soared to 18.79% as the geopolitical crisis due to the Russia-Ukraine war pushed edible oil prices higher.
- Ukraine is a major exporter of sunflower oil. In vegetables, inflation quickened to 11.64% in March, while in ‘meat and fish’ the rate of price rise stood at 9.63 compared to February 2022.
- The sharp rise in commodity prices across the world is a major reason behind the inflation spike in India. This is increasing the import cost for some of the crucial consumables, pushing inflation higher