Inflation is something that haunts every government not only the Modi government. Every government tries to reduce the inflation rate as low as possible. Not only does it raise the price of every commodity but also it changes the ruling government. It has been found that when inflation goes more than 10%, the ruling party change. Currently, in the Modi govt, the inflation rate was 5.88% in December. But it is expected to cross more than 6.50%. How it is affecting the common people when inflation rises RBI increases the repo rate. Subsequently, it increases the Home Loan EMI. It has been found that it affects more than 10% of EMI. Inflation shoots up for every country after the Russia-Ukraine war.
How Inflation is calculated?
Inflation is mostly calculated on the basis of CPI(Consumer Price Index) and other factors are also there. CPI takes 299 services and goods or commodities and compares their price with different years. To incur inflation RBI increases the Repo Rate.
Now, what is Repo Rate?
Just like a bank gives loans to companies at some interest rates. RBI also gives loans to these commercial banks and commercial banks to the general public. What RBI charges to commercial banks is called Repo Rate. In order to get a loan banks need to give government bonds and treasury to RBI.
How it is affecting us and the Modi government?
Since the EMI got a hike, but not the salary. Automatically it reduces the purchasing power of people or companies. In 2022 itself the repo rate got hiked for the fifth time. Even the seller of different commodities can not reduce the price to a certain extent. So as purchasing power reduces, so does the demand. Sellers have also to deal with increases in input price and past losses. In general, it is for every commodity market. Since there is no cash flowing in the market, many projects got struck down. Subsequently slows down the whole economy and this is what people called a general term Recession. As companies are not opening, so there is fewer job and more unemployment. Government not only has to deal with the rising prices but also many things accompanies by inflation.