INFLATION - ITS CAUSES and ITS EFFECTS ON VARIOUS SECTORS ON INDIA

abhishreshthaa

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WHAT IS INFLATION

Defination:

Inflation is defined as the rate at which the general level of prices for goods and services is rising and subsequently purchasing power is falling


Measures of Inflation

Inflation is measured by calculating the percentage rate of change of a price index, which is called the inflation rate.


Consumer price indices


Cost of living indices


Producer price indices


Commodity price Indices



Causes of Inflation in Current Scenario

Global imbalance the cause for global liquidity


The psychological dimension


Higher international farm prices impact Indian farm prices


Growth and forex flows



Steps taken to control the current inflation

  • A well planned, reasonable and balanced intervention by the government
    people have to understand the facts and logistics of price inflation.

  • The public distribution system has to be geared up


INFLATION IN AIRLINE INDUSTRY

  • One major issue is cost of Aviation Turbine Fuel

  • Companies prefer to ground flights

  • Prefer paying parking charges of Rs 50,000 per hr rather than keeping a flight in air which costs Rs 3,50,000.00 per hr

  • Job cuts in airline industries on a rise

INFLATION IN BANK

  • The RBI may go for further monetary tightening in the light of rising inflation

  • Yields are rising, compelling the banks to raise interest rates, which will hamper their business growth

  • Inflation concerns remain high with finance ministry officials indicating the rate could go up to 13 per cent in the near term

EFFECTS ON INFLATION ON AUTOMOBILE COMPANIES IN INDIA

  • The automobile sector is also suffering because of soaring raw material prices

  • The automobile sector is also suffering because of soaring raw material prices

  • The automobile sector is also suffering because of soaring raw material prices

  • The two-wheeler sector is especially suffering, as banks are not willing to lend fearing delinquency.



EFFECT ON STEEL AND RUBBER INDUSTRIES


  • Steel prices have hardened almost 21 in the current calendar year during 2008,

  • aluminium has risen by 16 in the current calendar year.

  • Rubber and plastic prices have also gone up substantially by 17 in the current calendar year and 24 in the current calendar year respectively

INFLATION IN IT COMPANIES

  • Patni computers has handed the pink slip to over 400 employees for non performance.
  • TCS other companies warns its employees that non performance wont be tolerated.
  • Companies like wipro and sutherland may cut down on incentives and other perks

INFLATION IN CEMENT INDUSTRY

  • Higher input costs, low market valuations and scaled up capacity amidst reduced demand is likely to take its toll on the cement industry.

  • The growth rate of the industry is projected to drop below 10 % for the current fiscal.

  • High inflation and home loan rates have slowed down the growth trajectory of the real estate sector, which accounts for 60 % of the total cement demand.

Small shops affected

  • Kirana stores have started feeling the heat .

  • Some small shops have shut and others are considering getting into new businesses

  • Prices of products or rice and pulses have gone up

  • Inflation has hit low income group which has taken its toll on small retail stores and businesses
.

EFFECT ON OIL PRICES

  • India is among the most expensive places for oil

  • Middle class have started using public transportation
  • Rising oil prices is a concern especially with the growth in sales of automobiles

  • More people have started using one mode of transportation example sharing of a car to go to office

  • Demand for petroleum products has increased at 2.4% to 3.3 %

ON Fast moving consumer goods (FMCG)

  • FMCGs are feeling the heat of inflation as their input costs have gone up while their sales have stagnated,

  • FMCG majors Godrej and Marico registered a decline of 0.88 percent and 8.28 percent in their total income on sequential quarter basis, while Hindustan Unilever and Dabur managed to post a 15.72 percent and 16.47 percent increase respectively.


Slow Moving Consumer Goods SMGC


  • LG has increased the prices of their products by 3 %

  • Most companies like voltas videocon samsung have cut down on the offers they used to have for their customers.

  • Sales have delined for smgc’s over the last 3 months by 23%

Sensex

  • A huge 6.5 % fall in Reliance Industries & 4.5 % fall in Bharti Airtel was responsible for the benchmark
    Sensex to close at 14590.16 points, down 498 points.

  • For the first time in 2008, the Sensex dipped from the psychological level of 15,000 points


  • Investors confidence is dented by the rising inflation.



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