"The first panacea for a misguided nation is inflation of the currency; the second is war. Both bring a temporary prosperity; both bring a permanent ruin. But both are the refuge of political and economic opportunists." -- Ernest Hemingway.
Economists attribute inflation to a demand-pull theory. According to this, if there is a huge demand for products in all sectors, it results in a shortage of goods. Thus prices of commodities shoot up.
Another reason for inflation is the cost-push theory. It syas that labour groups also trigger inflation. When wages for labourers are increased, producers raise the prices of products to make up for salary hike.
The rising prices of food products, manufacturing products, and essential commodities have pushed inflation rate further in India.
Spiralling global crude oil prices have worsened the situation. Sometimes, banks create more liquidity by allowing more loans for people, giving them the purchasing power to buy more, as a result of which prices are driven up further. The demand-supply gap also drives inflation rates.
Image: Hyundai Motors's newly inaugurated auto plant in Sriperumbudur, near Chennai. | Photograph: Dinyangshu Sarkar /AFP/Getty Images
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