• Join over 1.2 million students every month
  • Accelerate your learning by 29%
  • Unlimited access from just £6.99 per month

IB economics commentary - Inflation

Extracts from this document...


´╗┐Name of Candidate: FaiyazAzamKolia Candidate Number: 3071-040 Economics Commentary Number: SL Number 4 Title of Extract: High Inflation Cost Indian Households Rs 376k Cr. in FY11 Source of Extract: http://www.business-standard.com/india/news/high-inflation-cost-indian-households-rs-376k-cr-in-fy11-/440840/ Date of Extract: Wednesday, 29th June 2011 Date Written: Thursday, 21st July 2011 Word Count: 748 Section of Syllabus: 3 Name of Candidate: FaiyazAzamKolia Candidate Number: 3071-040 ________________ High inflation cost Indian households Rs 376k Cr. in FY11 BS Reporter / Mumbai June 29, 2011, 0:16 IST Rising prices of food items, besides petroleum products and commodities, have burnt a hole in the pocket of the Indian consumer during the last three years. The galloping inflation pushed consumer expenditure by Rs 3,76,000 Crore in 2010-11?more than an eightfold rise over an additional expenditure of Rs 45,000 Crore in 2008-09, according to Crisil Research. The poor and vulnerable households bore the brunt of high food prices, it said. The growth in private consumption expenditure, in nominal terms rose to nearly 17 per cent annually between 2008-09 and 2010-11, against 14 per cent in the preceding three years (2005-06 to 2007-08), primarily due to food inflation. ?The rise in inflation to eight per cent per year during FY09 to FY11 from five per cent in the preceding three years eroded the purchasing power of money and inflated the consumption expenditure bill of Indian households by Rs 5,80,000 Core,? said D Joshi, chief economist at Crisil. ...read more.


In the absence of these measures, high food inflation is here to stay, the report added. ________________ According to the article, rising prices of food items, petroleum and other commodities in India have increased consumer expenditure from 45,000 Crore rupees in 2008-2009 to 3,76,000 Crore rupees in 2010-2011. The brunt of these food price hikes have been mainly felt by the poor and vulnerable families. On the other hand, the prices of durable goods like electronics have fallen down which mainly benefits middle to higher income groups. All in all, if the government doesn?t boost food production, then high food inflation will be prevalent for a long time. GDP, gross domestic product, is the total quantity of goods and services produced domestically within a country in the span of one year. Economic growth is when there is an increase in a country?s GDP. Inflation is a consistent increase in the general price level of goods which leads to a fall in the purchasing power or value of money. Figure 1 Massive increase in private consumption expenditure is most likely due to an increase in population of the ?upper and middle class?. Demand-pull inflation is the result of the aggregate demand growing too quickly compared to that of supply-side capacity which results in excess demand for goods. ...read more.


Supply side policies are those that seek to increase supply thereby lowering inflation. The government should use more of supply side policies in strengthening the food production industry. Firstly, the government could set up first class training and education centres for employees in the food production industry, which will improve labour productivity and eventually, the aggregate supply. Over a period of five to ten years, the government can rotate subsidies on various types of training programs. In the short run, its effects will not be felt as education and training are long term endeavours but eventually it will benefit the economy by boasting a more skilled and efficient labour force, thereby reducing cost of production and increasing food supply. Secondly, another option would be subsidising the India?s food production industry: Agriculture. To increase production, the Indian government could introduce new irrigation methods, better cultivation strategies, more efficient transport systems etc. to farmers in more rural areas. Moreover, the government can proactively draw the attention of worldwide fertilizer companies who are looking to enter a new market or showcase their new products; the farmers will also benefit from an increased yield. Benefits to both parties have short term as well as long term connotations and more importantly, food inflation will leave the face of India for good. ...read more.

The above preview is unformatted text

This student written piece of work is one of many that can be found in our International Baccalaureate Economics section.

Found what you're looking for?

  • Start learning 29% faster today
  • 150,000+ documents available
  • Just £6.99 a month

Not the one? Search for your essay title...
  • Join over 1.2 million students every month
  • Accelerate your learning by 29%
  • Unlimited access from just £6.99 per month

See related essaysSee related essays

Related International Baccalaureate Economics essays

  1. Costs of inflation and deflation and evaluation of supply side policies

    High interest rates will also harm some people in the economy, most obviously anybody who has taken a loan or mortgage. High interest rates mean higher loans and mortgage repayments and will therefore be unpopular. A government that wants to be re-elected will hesitate to use these methods to fight inflation.

  2. Economics commentary - The economic crisis caused deflation in 2009, but consumer price levels ...

    of production of goods, particularly energy-intensive processes and transportation, and lower real wages and a lower level of economic activity. However, once the economy adjusts, ceteris paribus, there should only be an increase in price level, and no continuous increase.

  1. Winners and Losers of Inflation and Deflation

    Although it does have to be considered that during deflationary periods wages are reduced and more people become unemployed therefore making increased purchasing power only a short-term benefit. Deflation does benefits savers who have an interest rate higher then the rate of deflation as the real value of their savings increases.

  2. Old IB Questions

    Briefly, a firm gains less benefit from adding an extra unit of one specific input under diminishing marginal returns; on the other hand, under decreasing returns to scale, a firm gains less benefit from adding an extra unit of every input.

  1. China Inflation and GDP Growth

    By increasing interest rates, the negative interest rate (where interest rates are lower than inflationary ratio) will be corrected; reserve ratio must be tightened to reduce money supplied in the economy. Lastly, currency rates must be kept stable. Despite pressures by the US to give rise to RenMenBi, China relents.

  2. Commentary on Indian News Article "Food prices push inflation to 6.95%"

    "It is only focus on agriculture that will reduce inflation." The Confederation of Indian Industry says the upturn in inflation spelt bad news for the industry at a time when the industry was reeling under the impact of an investment-led slowdown caused by a tight monetary policy and with manufacturing

  1. Macroeconomics IA South Korea inflation at threeyear high on food price jump

    Overall, the use of the Fiscal or Monetary Policy could lower the price level and thus inflation, however it also lowers GDP, which could lead to a decrease in standards of living, spending, and employment, which could be considered a negative multiplier effect and could possible initiate a recession of the economic growth of Korea.

  2. What has happened to Canada's demographic over the past 50 years? What are ...

    Most jobs nowadays don?t require maximal physical effort, but when a young employee may be simply ?warming up? by lifting a box, an older employee may be exerting himself to his maximal capacity, and could cause fatigue. Sleep Regulation Work hours in the 21st century can be extremely varied, depending on the person and their preferred hours.

  • Over 160,000 pieces
    of student written work
  • Annotated by
    experienced teachers
  • Ideas and feedback to
    improve your own work