MITTAL SCHOOL OF BUSINESS

Name of the Faculty Member: Dr. Nadeem Ahmad Bhat

COURSE CODE: ECO113 COURSE TITLE: BUSINESS
ECONOMICS

ACADEMIC TASK NO: 3 ACADEMIC TASK TITLE:

ASSIGNMENT

STUDENT ROLL NO: STUDENT REG. NO:

B-56 12219392
B-54 12218314
B-55 12219372
B-57 12219499
TERM: 2 SECTION: QOC01

MAX. MARKS: 30 MARKS. OBTAINED:

Learning Outcomes: (I was able to learn about inflation and its importance in
the economy and also compare the level of inflation in different sectors of the
economy.)

Declaration: I declare that this Assignment is my individual work. I have not

copied it from any other students work or from any other source except where
due acknowledgement is made explicitly in the text, nor has any part been
written for me by any other person.
Submitted By: Sai Cherith Pinna

Evaluator’s Comments (For Instructor’s use only):

General Observations Suggestions for Best Part of

Improvement Assignment

S.NO. REG.NO. ROLL NAME PEER

NO. RATING
1) 12219392 B-56 SAI CHERITH PINNA 10/10

2) 12218314 B-54 NIDHI 9/10

3) 12219372 B-55 HRITHIK SINGH 9/10

4) 12219499 B-57 ADITYA BASWANA 8/10
 COMPARISON OF THE LEVEL OF INFLATION IN
DIFFERENT SECTORS OF THE ECONOMY

INTRODUCTION:
Inflation refers to the rate at which the general level of prices for
goods and services is increasing over time. It is often measured by the Consumer Price Index
(CPI), which tracks the price changes of a basket of goods and services commonly purchased
by households. Inflation is typically expressed as a percentage increase in prices over a
specified period, such as a year.

A rise in the cost of production, a decline in the supply of goods and services, or an increase
in demand for products and services can all contribute to inflation. When inflation is
excessive, it can have a big effect on the economy, lowering consumer spending power and
depreciating the value of investments and savings.

Governments and central banks frequently employ a variety of tactics, such as raising interest
rates, cutting back on expenditure, or altering monetary policies, to attempt and control
inflation. A moderate amount of inflation is typically regarded as beneficial since it promotes
investment and expenditure, but a high rate of inflation that persists over time can cause
economic instability and may call for considerable policy changes to solve.

DESCRIPTION AND BACKGROUND:

The inflation rate in India varies across different
sectors, including food, energy, and housing.
1) Food inflation is the general increase in the price of food products over time. As a
large portion of the population in India depends on agriculture for a living, food
inflation is a big concern. India has experienced relatively high food inflation in
recent years because of a variety of reasons, which include supply chain disruptions,
low productivity, and natural disasters. The government has taken many actions to
solve this issue, that include raising agricultural output and making investments in the
infrastructure of storage and transportation.

2) Energy inflation is the term used to describe the rise in the cost of energy-related
goods like fuel and electricity. The overall inflation rate in India is significantly
influenced by the price of energy. The nation is highly dependent on imports to meet
its energy needs, making it exposed to changes in world prices. In addition, taxes and
subsidies have an impact on the total energy costs. To resolve the issue, the
government has come up with several initiatives, including deregulation and the
utilisation of renewable energy sources.
 3) Housing Inflation: Residential real estate price increases are referred to as housing
inflation. The housing market in India has seen significant inflation rates as a result of
several reasons, including increased demand, tight supply, and rising building costs.
The government has put policies in place to deal with this problem, including the
development of programmes for affordable housing and the liberalisation of the real
estate industry.

Overall, India's government continues to implement policies to combat inflation in a number

of industries, including food, energy, and housing.
OVERVIEW OF INFLATION IN INDIA:

Inflation in India has been at a reasonable level recently. The annual inflation rate in 2020
was 6.2%, which was higher than the 4.7% rate in 2019. Increased food costs, particularly
those of vegetables and pulses, were a major contributor to the inflation surge.

Annual consumer inflation in India decreased to 5.66% in March 2023 from 6.44% in
February, which was slightly below market expectations of 5.8% and the lowest level since
December 2021. Due to a decline in food prices (4.79% vs. 5.95% in February), particularly
those of vegetables (-8.51%), oils and fats (-7.86%), and meat (-1.42%), which partially
offset an increase in the price of cereals (15.27%), milk (9.3%), and spices (18.21%),
inflation dropped back below the RBI's upper tolerance limit of 6%. Additionally, prices for
sugar and sweets increased by 1%. Costs for miscellaneous (5.77% vs 6.12%), clothing and
footwear (8.18% vs 8.8%), fuel and light (8.91% vs 9.9%), and alcohol, tobacco, and other
intoxicants (2.99% vs 3.22%) all decreased. On the other hand, prices rose faster for housing
(4.96% vs 4.83%)

The country's inflation is controlled by the Reserve Bank of India (RBI) which is the central
bank of the country. To manage inflation, the RBI employs a variety of monetary policy
measures, including interest rates, reserve requirements, and open market operations. The
RBI implemented policies to boost the economy in the wake of the COVID-19 outbreak,
including lowering interest rates and adding liquidity to the banking sector.

The economy is clearly impacted by inflation, especially for individuals and businesses. High
inflation can weaken consumer purchasing power and raise corporate production costs, which
can discourage investment and limit economic growth. Low inflation, on the other hand, can
encourage economic growth by increasing consumer and company confidence.

Source: Ministry of Statistics and Programme Implementation (MOSPI)

TYPES OF INFLATION:

1) Demand-pull inflation: This type of inflation happens when there is a surplus of

demand compared to supply, which drives up prices. In other words, it results from an
imbalance between the amount of demand and supply in the economy. Various
reasons, like a boost in consumer spending, expansionary fiscal or monetary policy, or
an increase in exports, may be to blame for this.

2) Cost-push inflation: When the cost of producing products and services rises,
businesses are compelled to raise prices in order to preserve their profit margins. This
may occur for many causes, including an increase in the price of imports, labour,
taxes, or raw resources.

3) Structural inflation: This kind of inflation results from modifications to the

economic system's framework, such as adjustments to rules, technology,
demographics, or other factors. For instance, if a nation's population is ageing, the
demand for goods and services that appeal to young people may shift to those that
appeal to elderly people, resulting in an increase in pricing.

4) Hyperinflation: It is a severe form of inflation in which the general level of price

increases quickly and uncontrollably. Typically, a considerable increase in the money
supply or a decline in the value of the currency will lead to hyperinflation.

5) Built-in inflation: This kind of inflation happens when people make decisions about
their earnings and prices taking anticipated inflation into account. For instance, if
workers anticipate price increases, they can ask for higher salaries, which could result
in price increases and start a self-fulfilling cycle of inflation.

Understanding the various types of inflation can assist individuals and policymakers in
making well-informed choices regarding how to control inflationary pressures and lessen
their effects on the economy.

Types of Inflation

Demand-Pull
Cost-Push Inflation Structural Inflation
Inflation

Hyperinflation Built-in Inflation

HISTORICAL TRENDS IN THE INFLATION RATES OF FOOD,
ENERGY AND HOUSING SECTORS:

Inflation has long been a problem for India in a number of economic areas, including food,
energy, and housing. The historical trends in the rate of inflation in these sectors are
summarised as follows:

1. Food Inflation:
Over the years, officials have been very concerned about the rising
cost of food in India. Food inflation remained high from 2008 to 2014, reaching a
peak of 20.2% in December 2010. But since then, food inflation has gradually
decreased, with an average rate of 3.3% between 2015 and 2020. Better storage
facilities, increasing food supply, and price-controlling government measures can be
called as the key causes of such reduction.

Food Price Inflation in India

2. Energy Inflation:
From many years, India has experienced considerable price swings
due to erratic energy inflation. Energy costs rose dramatically between 2006 and 2014
due to higher prices for crude oil and natural gas. However, since 2014, energy
inflation has decreased, primarily cause of declining global crude oil prices. The
average annual rate of energy inflation as of 2020 was roughly 2.4%.
 Energy Price Inflation in India

3. Housing Inflation:
Between the years 2011 and 2020, there was an average yearly
growth of about 7.5% in India's housing inflation. Rising land prices, higher building
expenses, and a lack of affordable homes are the main causes of housing inflation. To
tackle this problem, the Indian government has introduced a number of policies,
including increasing funding for affordable housing developments, implementing
rules for real estate developers, and providing tax breaks for homeowners.

Housing Price Inflation in India

Therefore, India has recently seen a modest drop in inflation, despite historically having
significant inflation in the food and energy sectors. Housing inflation is still an issue, though,
and officials are still looking for ways to lower housing costs for most of the people.
COMPARISION OF INFLATION BETWEEN THE SECTORS:

The Indian economy's housing, energy, and food sectors all experience varying amounts of
inflation, depending on a few variables. Here is a comparison of how much inflation there is
right now in each of these areas:

1. Food Inflation: In recent years, India has seen unpredictable food inflation due to a
variety of circumstances, which include disruptions in the supply chain, weather-
related problems, and changes in governmental policies. The Reserve Bank of India’s
most recent statistics indicates that the Consumer Price Index (CPI) for food and
beverages was 3.87% in March 2023. This indicates a slightest increase above the
3.80% result from the previous month.

2. Energy Inflation: The price of crude oil has a significant impact on energy inflation
in India. The Consumer Price Index (CPI) for gasoline and light increased
dramatically from the previous month, when it was 11.86%, to 12.44% in March
2023. The rise in global oil prices and the decline in the value of the Indian rupee
relative to the US dollar are the main causes of the rise in energy inflation.

3. Housing Inflation: The supply and demand for real estate in India are the main
factors influencing housing inflation. The National Statistical Office's most recent
figures show that the CPI for housing was 5.72% in February 2023. This is a little bit
higher than the 5.70% figure from the prior month.

Global prices, weather-related concerns, and governmental regulations are just a few of the
variables that might affect the inflation rates in the Indian economy's food, energy, and
housing sectors. Energy and housing inflation have recently demonstrated an upward
tendency, whereas food inflation has remained largely steady.
CONCLUSION AND RECOMMENDATIONS:
In conclusion, recent years have
seen alarming levels of inflation in India's housing, energy, and food sectors. Multiple causes,
such as the state of the global economy, problems with the supply chain, and governmental
regulations, have contributed to this. The biggest amount of inflation has been seen in the
food industry, where prices are rising more quickly than in the energy and housing sectors
combined.

The Indian economy and society may be significantly impacted by the rising rates of inflation
in various sectors. High food costs can make it more difficult for families to afford a healthy
diet, especially those with low to moderate incomes. Energy price increases can result in
higher expenses for transportation and production, which can have an impact on corporate
profitability and restrain economic growth. High housing costs can also make it difficult for
families to get suitable accommodation, which can result in homelessness and substandard
living situations.

The Indian government may need to put in place a number of measures to solve these
problems. Increasing domestic food and energy production is one possible tactic, which can
assist reduce dependency on imports and support price stabilisation. Additionally, enhancing
storage and transportation infrastructure helps lessen supply chain disruptions and guarantee
that products are delivered to customers on time and at a reasonable cost. The government
can also put laws into place to support the development of affordable housing, such as grants
for low-income families or financial incentives for developers.

Effective implementation and coordination across numerous government departments and

stakeholders are essential to the effectiveness of these efforts. The government must also
strike a balance between the need to support economic growth and development and attempts
to stabilise pricing. A stable and reasonable price environment is essential for sustainable
long-term economic development, even though efforts to combat inflationary pressures may
restrict short-term economic progress.

In conclusion, keeping an eye on these sectors' inflation rates is essential to ensuring that
consumer prices stay steady and manageable and that the economy keeps expanding
sustainably. Implementing policies effectively can reduce the effects of inflationary pressures
and guarantee that everyone, especially those with low to moderate incomes, has access to
basic goods and services. India can maintain economic growth and development while also
seeing to the necessities of its populace by tackling the root causes of inflation and
encouraging stable pricing regimes.