Inflation in India

• When the government of a country print money in excess, prices increase to keep up with the increase in currency, leading to inflation.
• Increase in production and labor costs, have a direct impact on the price of the final product, resulting in inflation.
• When countries borrow money, they have to cope with the interest burden. This interest burden results in inflation.
• High taxes on consumer products, can also lead to inflation.
• Demands pull inflation, wherein the economy demands more goods and services than what is produced.
• Cost push inflation or supply shock inflation, wherein non availability of a commodity would lead to increase in prices.

• When the balance between supply and demand goes out of control, consumers could change their buying habits, forcing manufacturers to cut down production.
• The mortgage crisis of 2007 in USA could best illustrate the ill effects of inflation. Housing prices increases substantially from 2002 onwards, resulting in a dramatic decrease in demand.
• Inflation can create major problems in the economy. Price increase can worsen the poverty affecting low income household,
• Inflation creates economic uncertainty and is a dampener to the investment climate slowing growth and finally it reduce savings and thereby consumption.
• The producers would not be able to control the cost of raw material and labor and hence the price of the final product. This could result in less profit or in some extreme case no profit, forcing them out of business.
• Manufacturers would not have an incentive to invest in new equipment and new technology.
• Uncertainty would force people to withdraw money from the bank and convert it into product with long lasting value like gold, artifacts.