India Inflation

Inflation is the rise in the general price level of a country. In this article we have tried to analyse the scenario of inflation in India.

The 1990s witnessed price stability the world over. A decreasing trend was observed in the rate of inflation for both the developed and developing countries. One cannot ignore the fact that India had received price shocks following international oil price hike and natural calamities that gave rise to fall in agricultural productivity . Leaving out these outliers there was a general decreasing trend in the inflation rate during the 90s.

During the first half of the fiscal year 2002-03, the general price level rose twice due to oil price hikes. Again droughts led to an increase in the price of oilseeds and edible oils which in turn pushed the general price level. But due to effective supply management the rate of inflation dipped in the second half of the financial year. So there was a rise in inflation by only 3.3 percentage points. The source of inflation was the rise in the prices of non food items , contrary to the previous years. Due to dearth in the production of oil seeds in India the domestic demand was met through imports. Rise in the price of manufactured products as measured by the wholesale price index was another cause that was highlighted in the RBI report. There was however no significant rise in the inflation rate when measured with the consumer price index of industrial workers.

From the above figure we find that inflation as measured by the Consumer Price Index has shown a decline continuously from 1995 to 1997. India witnessed a sharp rise in the prices in 1998 and a sharp fall thereafter. In 2004 there is again a rise in the rate of inflation.