COVID-19 and the lockdown have virtually demolished the economy. With companies and businesses closed and transport, except for essentials, production and demand have both crashed. GOI has failed to control the impact of coronavirus on the Indian economy. Thus out-of-control economies always end up in inflation because it’s the only way governments can default on their debts.
The virus has driven up the prices of groceries and the price of medical services is up 5.9%. It has mostly been driven by rising health insurance costs (up 19.7%) and hospital charges (up 4.9%). A surge in demand for products and services can cause inflation as consumers are willing to pay more for the product.
In post lockdown, when markets, companies, and businesses will open they will sell goods at higher prices so that they can cover the losses they suffered during lockdown which will ultimately create inflation in the economy.
Basically, Inflation means a rise in the prices of goods and services and a fall in the purchasing value of money. If inflation will occur, it leads to higher prices for necessities items such as food, it can have a negative impact on society.
But in reality, it means more outflow of cash in the economy. In other words, more the loan is given by the government to the public, more the chances of inflation creation.
Inflation is not accidental, it is policy. Inflation is the result of political necessities created by events. This is the only way the government can increase its stimulus package. A stimulus package is something that would increase GDP.GDP is the value of all goods and services which are produced within the domestic market of the economy.
On March 22, Reserve Bank Governor Shaktikanta Das said that inflation outlook is highly uncertain due to the outbreak of the COVID-19 pandemic and expressed concern over elevated prices of pulses.Further, he said government revenues have been impacted severely due to the slowdown in economic activity amid the pandemic.
Types of Inflation that reveals the true picture of Indian Economy
- Cripping Inflation- It is also known as mild or moderate inflation. This type of inflation occurs when the price of commodity increases by 3% or less. This kind of inflation change consumers’ behavior and they expect that prices will keep going up. Example- Prices of petrol and diesel. On June 14, the price of petrol in Delhi was Rs 75.78 per liter after an increase by 62 paise and that of was diesel Rs 74.03 per liter after a raised of 64 paise
- Open Inflation- In the case of open inflation, it directly depends upon the production capacity of the product where the government doesn’t have any control over the price fixation. In other others, markets for goods or factors of production are allowed to function freely without any interference by authorities. Example- Dry fruits, Saffron, and Avocado.
- Stagflation– Stagflation is when economic growth is stagnant, but there is still an increase in price. In other words, it is the situation in which on one hand, prices are rising and on the other side, there is no increase in production and employment. At present, there is stag inflation which has happened in the Indian economy.
Why would prices go up if there isn’t enough demand to improve economic growth?
Reasons are growth at a slower rate, unemployment, providing half wages and salaries, etc.
- Walking Inflation-Many times due to the rise in prices, the quantum of inflation increases between 30 to 40%. This type of inflation is harmful to the economy because it heats-up economic growth too fast.
For Example– Due to lockdown, People started to buy necessary goods more than they need.so that to avoid tomorrow’s much higher prices. This increased buying drives demand even further so that suppliers can’t keep up. More important, neither can wages. As a result, common goods and services prices are out of the reach of most people.
- Hidden Inflation– This inflation occurs in the economy when the prices of products remain the same and the quantity of that product decreases. For Example-Soap prices, chips prices like lays, uncle chips.
If you notice carefully, you will know this type of inflation is prevailing in the market. Due to coronavirus, demand for soaps has increased but the quantity has decreased.No action has taken by the government to control this inflation.
- Running and Galloping Inflation- This type of inflation should be prevented at all costs. It happens when the prices of some products an increase from 70% to 100% for a very short period just to discourage saving. Money lose its value so fast that employee’s income can’t keep up with the prices of the products. The economy becomes unstable, and government leaders lose credibility.
- Hyper Inflation- It means when the price rises at an unexpected rate. It is also called as Hydra-headed monster inflation where the prices increase by 100% to 200%. Most examples of hyperinflation occur when governments print money to pay for wars.
- Sectoral Inflation– When inflation affects a particular part of the country.For Example- Oil Sector, Clothing Sector, Vegetable sector. It is also called sporadic inflation.
- Markup Inflation– In this case, big companies while fixing the price of commodities generally add the profits to the cost just to increase the price of goods and add on their profits% which they will earn through the price of the product.This type of inflation is also running in the market.
- Core Inflation – When in an economy the prices of all goods and services increases but the prices of food items and energy sector don’t increase.Example– Higher gas costs increase the price of food and anything else that has high transportation costs.
- Demand-pull Inflation- In the case of demand-pull inflation, price rises just because of normal reasons for inflation.
- Cost pull Inflation-In this case, price rises just because of increment in the output of the product.For Example- Increment in the price of milk that will lead to an increment in the price of cheese, curd, sweets, and milk product.
In a lockdown, needy and poor people are hit by this inflation. Suddenly increase in the price of dairy products, many people unable to buy these vital items because of a shortage of money.
- Wage Induced Inflation- In this inflation, a person generally has a perception of increment in wages and salary. This kind of inflation occurs in three situations. First is when there is a shortage of workers. Secondly, is when labor unions negotiate ever-higher wages. Thirdly is when workers effectively control their pay.
Thus, from all types of inflation, we can notice that GOI is not able to control these inflations in the economy. Live examples are suddenly increased in petrol and diesel prices, dairy products, and many more.It seems that GOI will recover its losses and the economy by not controlling inflation only.