Inflation is a key term related to the broader economy, referring to the rate at which the general price level increases. For example, if the inflation rate is reported to be 5% in June 2023, it suggests that the overall price level within the economy was 5% greater than it was in June 2022.
Disinflation and Deflation
Disinflation refers to a period when, though prices are still increasing, they are doing so at a continually slower rate. An example of disinflation would be if the inflation rates were 10% in April, 7% in May, and 5% in June.
On the other hand, deflation is the contrary of inflation. It represents a time when the general price level is lower than what it was in the previous year. Moreover, deflation is linked to a decline in the prices for goods and services, usually due to a contraction in money and credit supply within the economy.
The Concept of Reflation
Reflation is a process that typically follows deflation. Policymakers attempt to stimulate economic activity in response to deflation, either through increased government spending or the reduction of interest rates.
What Causes Inflation?
Inflation can occur due to two principal causes: cost push inflation and demand pull inflation. The former occurs when input costs rise, pushing up the prices of goods and services. The latter happens when there is an excess demand in the economy, pulling up prices as a result.
How to Curb Inflation
Monetary and fiscal policies are standard measures to control inflation. Central banks may increase interest rates to align supply with demand, while the government can influence the economy by adjusting its revenue collection and expenditure.
Understanding the Wage-Price Spiral
A wage-price spiral is a scenario where rising prices lead to increased wages, thus increasing overall demand without improving supply. This eventually leads to further inflation and economic challenges.
Introduction to Greedflation
Greedflation describes a situation where corporate greed drives inflation. It’s basically a Profit-Price Spiral where businesses excessively raise prices to maximize their profit margins, fueling further inflation.
Impact of Greedflation
Greedflation tends to disproportionately impact individuals with low to middle income, reducing their living standards due to an increased cost of living. At the same time, it benefits the wealthy by enhancing their asset value. This disparity can widen the wealth gap and exacerbate income inequality.
Is Greedflation a Reality in India?
Based on recent trends, the net profits of listed companies in India indicate that greedflation might be a reality. The net profits of these companies surged to Rs.2.9 trillion in March 2023, over 3.5 times the pre-pandemic average of Rs.0.83 trillion from December 2017 to December 2019. This exceptional post-pandemic profit generation suggests the presence of greedflation in India.