Inflation

1. Inflation is the phenomenon of rise in prices of the goods and services over a period of time. It can be both desirable and non-desirable depending upon the quantitative limit of Inflation and is caused out of a number of reasons from demand supply gap more often, rise in prices of raw materials, disdain in the supply chain of the system, black-marketing and hoarding and many others.
2. Inflation can be measured in a variety of different ways. One way is to measure it at different levels of supply chain like at whole price level and is known as Wholesale Price Index (WPI) and at retailer level called as Consumer Price Index (CPI). Also number of goods and services included inside them can vary depending on the decision making body of the country or the state. It can be calculated differently for different sets of people depending on their consumption pattern like CPI-Industrial workers (CPI-IW) and CPI-Agricultural Labors (CPI-AL). In India they are collected and published by different organizations from Ministry of Statistics to Ministry of Labor.
3. Inflation is desirable when it is in limits and in coherence with development and growth in terms of production and demand. Different central banks across the world target a sustainable inflation rate which is normally in the range of 2-4% year on year. Such inflation rate has proven to be in line with growth in GDP and assures benefit to all the stakeholders of the system. Federal Bank of US target inflation rate of 1--2% to sustain a growth rate of 3-5% of their economy, similarly European Central Bank targets inflation rate of 2% to sustain growth rate of 3-4%. German Bundesbank (before formation of ECB) has proved its mettle in fighting inflation to keep it below 2% and this sustained high growth for german manufacturers throughout the cold war period.
4. While on the other hand inflation may proved to be undesirable when it is beyond the comfortable range of 4-6%. Such inflation rate is not sustainable and mainly caused out of abrupt hike in prices of raw materials, increased cost of production out of regulatory reasons, hoarding, black-marketing or may be because of lack of competition in the market. Such high rate of inflation is harmful  because of increase in prices of goods and thus hampering its consumption and thus hampering the demand and ultimately growth of the sector. It also erodes the faith of foreign investors into the economy of the country and lead to flight off of foreign investors. Along with high inflation, demand of the goods come down and as per Demand Supply curve; this will further pull down production leading to unemployment and less investment into the economy. In the short run, this will cause slowdown and high inflation prolonged for a long time duration will push the sector into recession.
5. In context of India, since independence inflation has been predominant out of number of factors. At some instant, inflation is there in food grains in pre green revolution era out of drought and crop failure limiting the supply of food grains; at other instant inflation is there in capital and durable items because of increase in prices of raw materials and regulatory reasons like that of vehicles because of shortage of coal and electricity inflating price of steel and then to vehicles. Inflation has thus, a wide reaching affect to multiple sectors. The worst form of inflation is due to malpractices like hoarding of goods creating artificial shortage with motives of earning high profits. Such practices are very common to India from the time of britishers and specially in the food grains as they are essential items of consumption.
6. In the current scenario, inflation is high and is hovering around 8-12% in case of CPI because of reasons including high govt. expenditure through MGNREGA and other social assistance programmes pushing more money into the market, continuous increase in MSP (minimum support price) of cereals and other food items pushing cost at the procurement level, as well as malpractices of hoarding.
7. Although all sections of society is affected by high inflation as it leads to wiping off the savings of the families and individuals. But the worst effected people are marginally poor who are continuously moving in and out of the poverty line and specially because of high inflation in case of foods and essential items. In the absence of govt. support, they have been pushed below the subsistence level
8. Govt. across the world use to take multiple steps to check high inflation. The leading fight against inflation is carried on by central banks who through target based inflation increase/decrease the interest rates to control the flow of money into the market (more money in the hands of people pushes up the demand of the goods). This they do through changing the rates at which they lend money to the banks and other regulated institutions and thus affecting cost to money. In case of India, Reserve Bank of India is leading in this fight with target inflation of 4+_2%, through repo and reverse repo rates.
9. Besides this, govt. across the world ensure the prices of the goods and commodities not to breach a certain level by controlling the import and export of those goods and commodities. Further controlling the prices of essential commodities through acts and laws like Essential Commodities Act in case of India. Laws across the world have been made to check hoarding of commodities and black-marketing of such goods.
10. In-spite of such measures high inflation is prevalent in society sometimes because of poor implementation of laws and rules, poor forecasting in case of central banks, natural calamities and poor planning at production level. The war against high inflation has to be continuously fought through existing and innovative tools with firm hands in the interest of the society and economy as a whole.