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6 types of inflation that affect our daily finances
Financial experts feel that controlling food inflation in India is a tough task.
Price hike is the only constant”, goes a famous adage.
When prices are rising, it essentially means the value of the currency is eroding, thereby losing its purchasing power.
Called inflation, this is the biggest deterrent to any financial planning and drag on your personal finances.
From the finance minister, who has to manage the nation’s finances, to a homemaker who manages the finances at home, inflation affects everyone in one way or the other. Inflation has an effect on all aspects of life and calls for a proactive approach to bypass its impact.
Here is a look at six different types of inflation and how they affectyour financial planning.
Food Inflation
The cost of food has constantly been on the rise, pinching the pockets of average buyers. Everything from foodgrain to dairy products and from fruits and vegetables have witnessed a price increase over the years.
As per the data released by Ministry of Statistics and Program Implementation, the cost of food in India has increased 5.11 per cent in April of 2015 over the same month in the previous year.
Financial experts feel that controlling food inflation in India is a tough task, as the country is reliant of the monsoon rains for agricultural growth.
Moreover, the policy of raising import tariffs in times of surplus and implementing export bans during shortages has not helped as it has resulted in a closed food economy.
Food inflation gnaws at the very core of the common investor’s finances by causing his monthly household expenses to balloon.
This reduces the disposable income and may affect monthly payments and liabilities if adequate buffer has not been factored in while taking on those liabilities.
Housing Inflation
Housing is one of the three basic necessities of life.
Everything from raw materials to labour and production costs have increased multifold, leaving builders with no option but to escalate the price of real estate projects.
Real estate prices have deflated in the preceding two years because of market disinterest and unsold inventory.
Reserve Bank of India data show that the Residential Property Price Index, which measures housing inflation, has been declining since the start of 2014.
Consequently, squeezed for margins, builders have attempted to hang on to prevailing property prices and negotiating downwards only when they are amply sure of the buyer’s seriousness.
As a result, property buyers have been confronted with higher purchase costs.
This is an indirect effect of inflation on property buyers’ plans.
Even those who have been planning to build their own home on a self-owned plot of land are now being forced to shell out more money as compared to the same period last year. However, unlike food inflation, the price index of real estate has increased over the longer run, giving good returns for property sellers in the future.
Medical Inflation
The government has embarked on a serious drive to curb the skyrocketing medical costs in India.
Restrictions on drug price rise and technological innovation are part of these.
However, this will take some time for the benefits to trickle down to the average individual.
For an average household, medical and hospitalisation bills continue to streak upward, straining home budgets and gnawing away at savings each time there is a medical emergency or hospitalisation.
These expenses are only expected to inflate as you grow older, and health insurances, which are a must today, are not getting any cheaper.
Only radical surgery of the healthcare industry, aided by targeted health reforms and subsidy interventions by the government, can provide a semblance of succour to the common man.
to be contd....
Price hike is the only constant”, goes a famous adage.
When prices are rising, it essentially means the value of the currency is eroding, thereby losing its purchasing power.
Called inflation, this is the biggest deterrent to any financial planning and drag on your personal finances.
From the finance minister, who has to manage the nation’s finances, to a homemaker who manages the finances at home, inflation affects everyone in one way or the other. Inflation has an effect on all aspects of life and calls for a proactive approach to bypass its impact.
Here is a look at six different types of inflation and how they affectyour financial planning.
Food Inflation
The cost of food has constantly been on the rise, pinching the pockets of average buyers. Everything from foodgrain to dairy products and from fruits and vegetables have witnessed a price increase over the years.
As per the data released by Ministry of Statistics and Program Implementation, the cost of food in India has increased 5.11 per cent in April of 2015 over the same month in the previous year.
Financial experts feel that controlling food inflation in India is a tough task, as the country is reliant of the monsoon rains for agricultural growth.
Moreover, the policy of raising import tariffs in times of surplus and implementing export bans during shortages has not helped as it has resulted in a closed food economy.
Food inflation gnaws at the very core of the common investor’s finances by causing his monthly household expenses to balloon.
This reduces the disposable income and may affect monthly payments and liabilities if adequate buffer has not been factored in while taking on those liabilities.
Housing Inflation
Housing is one of the three basic necessities of life.
Everything from raw materials to labour and production costs have increased multifold, leaving builders with no option but to escalate the price of real estate projects.
Real estate prices have deflated in the preceding two years because of market disinterest and unsold inventory.
Reserve Bank of India data show that the Residential Property Price Index, which measures housing inflation, has been declining since the start of 2014.
Consequently, squeezed for margins, builders have attempted to hang on to prevailing property prices and negotiating downwards only when they are amply sure of the buyer’s seriousness.
As a result, property buyers have been confronted with higher purchase costs.
This is an indirect effect of inflation on property buyers’ plans.
Even those who have been planning to build their own home on a self-owned plot of land are now being forced to shell out more money as compared to the same period last year. However, unlike food inflation, the price index of real estate has increased over the longer run, giving good returns for property sellers in the future.
Medical Inflation
The government has embarked on a serious drive to curb the skyrocketing medical costs in India.
Restrictions on drug price rise and technological innovation are part of these.
However, this will take some time for the benefits to trickle down to the average individual.
For an average household, medical and hospitalisation bills continue to streak upward, straining home budgets and gnawing away at savings each time there is a medical emergency or hospitalisation.
These expenses are only expected to inflate as you grow older, and health insurances, which are a must today, are not getting any cheaper.
Only radical surgery of the healthcare industry, aided by targeted health reforms and subsidy interventions by the government, can provide a semblance of succour to the common man.
to be contd....