Hello readers,
A news that is making headlines is that Inflation has come down to 9.59% and it will drop drastically from June. This same pattern was observed last year also, when the inflation had climbed to levels of 14% and then it came to the negative zone. But again it started its upward journey and reached these levels, and again the govt is saying that it will come down.
These things or statements might fool a common man but we should understand one thing that the prices are not coming down, the rate of inflation is just fooling us all.
Lets us assume that we have a 100 rupee note with us, and assume the rate of inflation is the addition it will have per year. When the rate of inflation is 14% then the value it will have after a year is 114, and if the inflation dips to let say -1% then the value will just decrease by 1 to 113rs .And again when the inflation jumps to 10% then it shows a increase of 13rs to the total, making it 126rs.
Actually what is happening is that the prices are building on their base prices day by day, stopping for a bit and then again marching forward.
The 126rs total which we got is the price of a good that has increased by 26% in 2 years time.
Now see one more factor, the deposit rate of banks, it is just 3.5% per annum. What it does is that, when we have a 100rs with us we are getting 103.5rs at the end of the year. And according to the cross examination with inflation we are actually in a situation of loss by 10% or so, as we are losing money on one hand as the prices of goods are increasing but our money is growing at a rate of 3.5% which is lesser then the inflation.
This is just the case with the developing nations like INDIA. In the European countries we have the rate of inflation at a discount to the bank deposit rate. If their Inflation grows above the bank deposit rate then a havoc will be created. Their will be financial crises and lots of news will be made out of it, but in India, we are assuming the fact that we are a developing nation and we can't do any thing.
