The trend has not just harmed the economically disadvantaged, but it has also been linked to lower savings rates among the wealthy. The most significant effect of inflation is that it reduces the purchasing power of fixed-income groups, as they can now purchase fewer items than they could previously.
Even if consumer price-based inflationary pressure has recently abated on a macro level, it remains strong enough to wreak havoc on the finances of any middle-class Indian family.
Notably, CPI-indexed inflation has fallen to 6%, which is within the Reserve Bank of India’s comfort zone.
However, several CPI and wholesale price inflation (WPI) components, such as transportation fuel costs, have seen a significant increase.
Because of a second-round impact, every increase in fuel costs raises the prices of practically all necessary commodities. Fuel price increases usually influence overall freight and transportation expenses.
Rahul Kumar, 28, who rides his two-wheeler to work in Noida, claims that rising fuel prices deplete his monthly income rather than help him save.
“The rise in petrol prices to above Rs 100 per litre, of tomatoes at Rs 80 per kg, besides ever rising rents could not have come at a worse time since we are already having pay cuts,” he said.
“The high spend on petrol due to exorbitant prices itself depletes my income. There has been no savings or investments for at least the last two years.”
Chabilal Das, a middle-aged daily essentials provider in Noida, echoed similar concerns about rising pricing.
“My income has gone down drastically post pandemic as many few people working in formal sectors have returned to the city as they have work from home options. They are my target customers. How will I pay my EMIs now, that has now become my biggest headache,” Das said.
Rising fuel prices, according to Anil Kumar, a Delhi-based taxi driver, have affected his cost-to-income margins.
“Rising fuel prices have hurt us the most as we need to pay the EMIs of our vehicle loans, which becomes difficult due to a fall in real income. This pandemic has hit us hard,” Kumar said.
Furthermore, a global increase in commodity prices boosted the cost of produced goods, harming margins and end-users alike.
Suman Chowdhury, Chief Analytical Officer of Acuite Ratings and Research, said: “Some categories in the food basket have seen heightened inflation in the current year, which includes edible oil, eggs, meat, fish, and pulses. Further, the sharply increased prices of petrol and diesel have also increased household expenditures with the unlocking of the economy.”
“However, it needs to be mentioned that the higher retail fuel prices have got offset to an extent as many salaried employees still have the flexibility to work from home. Going ahead, there is a risk that as the economy continues to unlock and demand for contact-intensive services such as hospitality and leisure increases, the inflation in services may see a surge.”
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India’s headline inflation, according to Chowdhury, would be 5.5 per cent for the whole FY22 fiscal year, and 6% for Q4FY22.
Rajat Mohan, a senior partner of AMRG and Associates, said: “The negative effects include impeding purchasing power, inequality in income distribution increases, it negatively impacts the export income as the export prices increase, leading to a fall in foreign demand; elevated interest rates in the long run; and a reduction in the savings rate.”
“The energy sector, food processing sector, goods and commodities sector, automobile industries, and real estate sector continuously agitate with inflation, predisposing middle-class families to financial crisis and instability.”