What is inflation? why inflation? current rate of inflation? what is effect of inflation on Indian economy?

Question

What is inflation? why inflation? current rate of inflation? what is effect of inflation on Indian economy?

Answer 1

inflation is the factor by which u judge the prise rise in a country.........it also helps in giving an economic view of that country......i'l xplain u how it works....

look, to satisfy our daily needs we buy products n commodities frm the market like food, clothing, etc etc.....

now for ex, lets consider the current scenario.....wher oil price is increasing.......wat has happened is developing countries like india n china r dependent heavily on oil 4 power n energy. if we lessen our oil intake, it will hamer our growth which the government cant afford......now the world is producing oil at a certain rate n cant produce enuf to meet the rising demands of developing countries........so the supply decreases n the demand increases.....now since demand increases the contries who sell oil ask astronomical prize n they know we'r gonna pay 'em coz we need oil......

now since we'r payin more 4 oil....oil based products like fuel price has to b increased in the country also.....which was the reason y the petrol n diesel prices wer increased.......as fuel prices increased.......transportation became costly.......airline increased tikit prices........many trasport agencies which supply food and utilities thru trucks reduced their vehicles to compensate 4 the fuel price....which in turn increased the prices of commodities like steel, household products etc......so u c just a increase in the price of 1 product caused the prices of other products to increase........this is inflation....wen supply fails to meet demand.........

india's inflation is almost 12% which is very bad for the economy......coz the government has to mostly bear the brunt of inflation.........this reduces our forex reserves..........

so high inflation is bad for the economy of any country.....

Answer 2

Inflation exists because of an ever increasing demand and the gap it creates with limited supply.

Why Inflation

Without it there would be no meaning of interest rate and lot of other economic forces governing a nation's financial profile.

Current rate is around 11 %

Effects

High inflation would mean that interest rates offered by banks must also be high. Remember If inflation is more than interest rates for a long period ( usually more than 4 quaters ) then effectively currency value is going down as you money in the bank is not earning u anything worthwhile. An e.g is below

Let's say Inflation rate is 10% per annum which means any product say petrol which has a current price of 100 will cost us 110 after 1 year and interest rate is 8% per annum  which means for every 100 bucks u have get 108 after 1 year. So even after earning 8 bucks from the bank in the form of interest you are short by 2 as inflation exceeds interest rates.

Higher inflation means higher interest rates means lower liquidity in market i.e. less cash available for transactions to change hands et al leading to situations like credit crunch as well which have a direct impact on investments and growth of all sectors.

Too low inflatiion rate will make banks to drop down interest rates considerably just like US did a year or 2 back leading to a housing and credit crunch we see now which has lead to the eventual slowdown.

Answer 3

the simple meaning of inflation is "prise rise".

the current rate of inflation is more than 11%.