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Retail inflation in India rose to 3.65% in August, up from 3.54% in July. This recent increase is significant as July’s inflation rate was the lowest in 59 months.
Food inflation also saw an increase, climbing from 5.42% to 5.66%. Urban inflation rose from 2.98% to 3.14%, while rural inflation went up slightly from 4.10% to 4.16%.
Interestingly, food inflation has improved compared to last year. In August 2023, food inflation was as high as 9.94%, but it has now reduced to 5.66%. Despite this decrease, food prices still contribute about 50% to the inflation basket, impacting overall inflation rates.
The Reserve Bank of India (RBI) had set an inflation target of 4.5% for this fiscal year during its recent monetary policy meeting. RBI Governor highlighted that while inflation is decreasing, the progress is slow and uneven. He emphasized the importance of remaining vigilant to ensure inflation aligns with the target.
How Inflation Affects You
Inflation directly impacts purchasing power. For instance, with a 6% inflation rate, ₹100 earned today would only have the purchasing power of ₹94 in the future. Therefore, it is crucial to consider inflation when making investments to preserve the value of your money.
Why Does Inflation Fluctuate?
Inflation rates are influenced by the balance between demand and supply. When people have more money, they tend to buy more goods, increasing demand. If supply cannot keep up with this heightened demand, prices rise, leading to inflation. Conversely, if demand falls and supply remains high, inflation tends to decrease.
Understanding CPI
The Consumer Price Index (CPI) measures inflation by tracking changes in the average prices of goods and services purchased by consumers. This index includes around 300 items whose price changes determine the retail inflation rate. Factors like crude oil prices, commodity costs, and manufacturing expenses also play crucial roles in determining retail inflation.
Inflation impacts the economy in various ways, affecting purchasing power and investment decisions. As inflation trends continue to evolve, both consumers and policymakers need to stay informed to navigate these economic changes effectively.
