Retail inflation resurges to 7%.

India’s retail inflation resurged to 7% in August from 6.71% in July. It is fueled by an uptick in food prices paid by consumers.

This is the eighth successive month that retail inflation has stayed above the central bank’s (RBI) upper tolerance threshold of 6% inflation for the economy.
Rural inflation, which was at 6.8% in July, saw a sharper rise than urban inflation in August, rising to 7.15%.
Urban consumers’ inflation rate moved up from 6.49% in July to 6.72%.

Inflation is the general increase in the prices of goods and services in an economy.

Demand push factors:
- It is caused by high demand and low production or supply of multiple commodities, creating a demand-supply gap, which leads to a hike in prices due to increased consumption.
- For example, when the government lowers taxes, it also drives demand.
Cost Pull factors:
- It is caused by a shortage of factors of production like labour, land, capital, etc., and also due to artificial scarcity created due to hoarding.
- For example, if low-paid workers in a factory form a union and demand higher wages.

Creeping Inflation:
- When the rise in prices is very slow (less than 3% per annum), like that of a snail or creeper, it is called “creeping inflation.”
Walking inflation:
- When prices rise moderately, and the annual inflation rate is a single digit (3% – 10%), it is called “walking or trotting inflation.”
Running Inflation:
- When prices rise rapidly, like the running of a horse at a rate of speed of 10% – 20% per annum, it is called “running inflation.”
Galloping Inflation:
- Inflation in the double or triple-digit range of 20, 100, or 200 per cent a year is called galloping inflation.

The Wholesale Price Index (WPI):
- It measures the changes in the prices of goods sold and traded in bulk by wholesale businesses to other businesses.
- Published by the Office of Economic Adviser, Ministry of Commerce and Industry.
The Consumer Price Index (CPI):
- It is the measure of changes in the price level of a basket of consumer goods and services bought by households.
- It is released by the National Statistical Office (NSO).

Increasing Profits for Producers:
- In most cases, inflation benefits the producers of goods. They make more money because they can sell their products at higher prices.
Shareholders’ income increases:
- If a company’s profits increase due to inflation, it can pay dividends to its shareholders.
- As a result, shareholders’ dividend income may increase during inflationary periods.
Borrowers’ Advantages:
- Inflation reduces the purchasing power of money. As a result, if the borrower pays an interest rate lower than the inflation rate, he benefits from the process.
- This is due to the fact that the real value of the money returned by the borrower is less than the value of the money borrowed.
The government’s tax revenue improves:
- As the cost of goods and services rises, people should pay more in indirect taxes.
- Tax revenue increases for the government, but the real value does not keep pace with the current inflation rate due to a lag in tax collection.

Real-Income falls for groups with fixed income:
- This means that people on fixed incomes, such as salaried workers, pensioners, and the like, will see a drop in real income.
- To put it another way, their purchasing power will be reduced.
Income distribution inequality is rising:
- Profits for business owners and entrepreneurs rise due to inflation.
- People in fixed-income groups, however, see a decrease in their real income.
- As a result, income inequality is more pronounced during this time period.
The rupee may depreciate:
- Due to less purchasing power parity, the demand for the dollar increases, depreciating the Indian rupee.
- This benefits the exporters and will burden the importers.
Lenders Will Sustain Losses:
- As mentioned before, borrowers benefit from inflation when it positively impacts them.
- As a result, lenders risk losing money during such times.
- This is because they receive a sum with less purchasing power than the amount loaned.

It is a central bank (RBI) policy that focuses on altering monetary policy to attain a set annual inflation rate.
In India, the Monetary Policy Framework Agreement agreed between the RBI and the government in 2015 established inflation targeting.
The RBI is mandated to maintain a rate of inflation of 4% with a 2-percentage-point deviation, i.e., inflation must be kept between 2% and 6%.
If consumer inflation is more than 6% or less than 2% for three consecutive quarters beginning in the 2015/16 fiscal year, the central bank will be considered to have missed its objective.

Content Source: The Hindu