Saroj Kumar
Not only is the economic impact of inflation painful, the social impact is more painful. People suffering from financial crisis are forced to take steps like suicide. As society progresses towards degradation, crime gets encouraged. Overall, the road ahead is tough.
The pace of the epidemic may have slowed down, but inflation is on the rise. Geopolitical conditions are acting as fertilizer in this. In the absence of earnings, in what condition the upward direction of inflation will bring the common man, it is difficult to say. If inflation and earnings are not kept at the center in the management of the economy, then the condition of the country will also be pathetic. The latest inflation rate data is currently indicating something similar.
Inflation is currently at an eight-month high. For the second consecutive month, the Reserve Bank of India (RBI) exceeded the target limit. Retail inflation based on the Consumer Price Index (CPI) rose to 6.07 per cent in February. In January it was six decimal one percent.
Similarly, wholesale inflation based on the Wholesale Price Index (WPI) rose to 13.19 percent in February, from 12.09.6 percent in January. It is a matter of concern that the wholesale inflation rate has remained in double digits for eleven consecutive months. In November 2021, it had reached a historic high of fourteen decimal nine percent. Came down a bit in December, still at thirteen decimal five six per cent. In February 2021, the wholesale inflation rate was 4.08.3%.
The rise in wholesale inflation increases the cost of manufacturing and ultimately the cost is passed on to the common consumers. The current rise in retail inflation is a result of this. The root cause of increase in wholesale inflation is the increase in the prices of raw materials in the international market. Due to the pandemic, the demand for raw materials has increased rapidly due to the commencement of stalled economic activities for a long time. While the supply has not reached the pre-pandemic condition. Behind this, some greed of the exporting countries, and some external circumstances are responsible.
Now a new circumstance of the Russo-Ukraine war has been added to it. The supply chain has been severely disrupted due to the war. As a result, the whole world is getting scorched by the heat of high prices. The price of crude oil in the international market has crossed $100 per barrel. It is likely to go up further. India imports more than eighty percent of its crude oil requirement.
According to an estimate, an increase in the price of crude oil by 10 percent increases the inflation rate from zero three percent to zero four percent and causes a loss of about zero to twenty percent to the GDP growth rate. Since the Ukraine crisis, the price of crude oil has increased by more than twenty five percent. The US central bank- the Federal Reserve has planned to increase the interest rate by twenty-five basis points to deal with inflation, which has reached a forty-year high. After this increase, crude oil will become more expensive. India’s import bill will increase. It will be a difficult situation for the common man as well as the economy.
The latest data on retail inflation paints a strange picture, which is particularly worrying for the country’s rural population. In February, the rural inflation rate was 6.08.3%, and the urban inflation rate was 5.7%.5%. Whereas in February 2021, the picture was quite the opposite – rural inflation rate is 4.91.9% and urban inflation is 5.09.6%.
Higher inflation rates in villages than in cities are indicative of a new negative economic trend, that too due to food inflation. The food inflation rate in the villages has been five.8-7 percent, while in the cities it has been five-decimal seven-six percent. This rate of inflation is when demand has not reached the level before the pandemic. This inflation is not due to demand.
The RBI, in its monetary policy review in February 2022, said that private consumption, the basis of domestic demand, is yet to reach pre-pandemic levels. The central bank had kept its policy rate i.e. repo rate unchanged at four percent. In order to increase the demand in the market, RBI has not increased the policy rate for the last twenty months.
But this move of the RBI, focused on disbursing debt, has not proved to be very effective due to the unstable financial environment created in the midst of the pandemic. However, it has shown the opposite effect. When banks reduced the interest rate on deposits, the life of the elderly, widows, pensioners, people associated with social institutions became difficult. When interest income fell, the budget got messed up, and spending had to be cut. Due to this, while the demand in the market has decreased on the one hand, on the other hand the social security of the people concerned has also been hurt.