According to the rules of economics, inflation, the average level of prices for goods and services increased. In a sample basket of goods and services price changes to get the estimated figure due to the possible values for each and every product and service is not separately calculated is used to change. Demand-based supply-driven inflation and inflation: the inflation rate is mainly of two kinds.
Inflation induced demand: say, a year before you had money. 1000 100 products available in the market to purchase assuming you only buy these products man. A year later you have Rs. 5000 to buy the 100 items available in the market. What do you think the price of these items will happen now? Prices of these items will be 5 times longer on average. The event is called demand-driven inflation, as when too much liquidity chasing too few products. It says that demand outstrips supply.
Supply induced inflation: demand-driven inflation it really that important to contrast the lack of supply of goods or services is due. This means that the price of products will increase due to the lack of availability.
Recently RBI has taken several steps to fix inflation. Couple of times in key policy rates by the Reserve Bank has extended this year to rein in inflation, the demand side.
How inflation is measured in India ?
Each week, the Reserve Bank's inflation numbers come out with. The number one wholesale price index (WPI) is measured using known index. Wholesale Price Index average price level of goods traded in wholesale market. These are divided into different categories, namely. Primary (food articles, non-food items and minerals.) Articles, fuel, power, light and lubricants and manufactured goods. If the average price level associated with weight given to different categories are measured on a weekly basis. Percent increase for a base year with respect to the inflation rate is referred to as.
Government official wholesale price index for the base year to 2004-05 has shifted, first from 1993-94, and the items in your basket as many as 241 new items added. First there were 435 items. Importance has been changed. This inflation will help to achieve a more realistic picture.
For a commodity like wheat's wholesale price index calculated. Assume that the price of one kilogram of wheat in 2005 was Rs. In 2010 and 20 bucks. 25
2010 is the year for WPI of wheat,
(In 2010 the price of wheat - the price of wheat in 2005) / 2005 x 100 which comes out to be the price of wheat (6.10-5.75) / 5.75 x 100 = 6.09
Wholesale price index since the base year is assumed as 100, for 2010? = 6.09 106.09 100 Wholesale Price Index will be.
Inflation as the number an average increase in price level of goods and services, increase the cost of a good can not be real is correctly guessed. For example, if you want to estimate the increase in housing prices, inflation data will not be the right way. Housing prices have increased astronomically in recent years. Housing price growth expected primarily in the area will depend on location.
India's annual inflation food on September 25 ended 16.44 percent last week compared to 16.24 percent for the week dropped a tad. The index for fuel during the week remained stable at 10.73 percent.
Plan to combat inflation
1) If you are an investor primarily invest in bonds or fixed deposits, it is high time to reconsider your investment plan. Value for money as inflation erodes, higher inflation will ultimately lead to little real benefit. Under high inflation conditions, interest rates move higher returns which means new investors hope will get eaten. Therefore, it is advisable a long-term deposits or government bonds rather than short-term funds to put their money.
2) are of the same concerns, you should also get rid of long term debt funds. Interest rate increases, bond prices of bonds in the turn of the NAV (net asset value) reduces. Therefore, you short-term funds which is not very sensitive to interest rate risk should move to
3) to reconsider their investment decisions. Inflation increases, it is better to give better returns in the long term equity invest. Therefore, a long-term mutual fund investor, you better run by the skilled fund managers are investing into.
4) As interest rates move, it's better to invest in properties. It is expected that during times of high interest rates, property rates will come up.
5) In addition, it is important that you invest in different asset classes by your risk is diversified.
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