INFLATION - The Contemporary Economic Witch

The world today is becoming a sobriquet for Correction; correction in share market, correction in dollar rates, correction in interest rates and very soon as prognosticated by many trade pundits-correction in gold prices ! The logic is simple - a boom in any economic sector is followed by a correction period; after-al "the bubble of health" has to burst someday. That's what we have been witnessing since the past year.

But there's one thing that just doesn't seem to correct itself - INFLATION

Ever rising prices of household items, services, taxes; with just the same income in hand of the middle and lower classes and the exponentially rising anger and dissatisfaction is what the word INFLATION connotes to me in the most basic of terms.

The best example of inflation: The price of petrol :

From Rs.45 in 2008 to Rs.64 in 2011; a whopping 42% increase and rising !

REASON :

Inflation basically finds its roots in the "Money in hand-Demand-Supply Cycle"

More the money in the hands of a consumer --> More will be his/her demand for goods & services

---> Difficult for an economy to meet the growing demands ---> To curb the demand, price of goods & services rise -> INFLATION is born !
As a matter of fact, whatever/whichever event leads to depreciation in the supply of goods & services, becomes a reason for inflation !


SOLUTION : 
Though no particular solution to tackle inflation is cent percent effective; yet to tame this 'witch' few of the steps that our governments have been taking can be listed as :

• ROLE OF CENTRAL BANKS (RBI in INDIA) - The money control machine of an economy aka the central banks or the Reserve Bank of India in our purview; control the supply of money by correcting the interest rates (Repo Rates & Reverse Repo Rates - explained in the above post), hence bringing down the inflation rate.
• MONITORING SUPPLY - Supply of goods in an economy should be effectively monitored to check any discrepancy that might lead to inflation. Example : Indian economy is an agro based economy; bad harvest due to poor irrigation or chemical treatments should be checked by the government to keep the demand and supply of agricultural goods balanced.
• AUSTERITY MEASURES - More the the expenditure, more will be the rise in prices; thus to tame inflation a government should adopt austerity measures for sometime by restricting its spending.
• COLLECTIVE EFFORTS - Do I need to explain that ?!

The above steps can to some extent jeopardize the economic growth of a nation, but for a small period; and in the long run the INFLATION WITCH would face its own sudden death !