12 August,2026 02:09 PM IST | Mumbai | mid-day online correspondent
Representational Image. File pic.
We have all heard our parents or grandparents say that things weren't as expensive in their days as they are today. So, why do prices go up and why are things more expensive today? The answer is simple: inflation. We come across the term inflation quite frequently in our day-to-day lives but what exactly is inflation and how does it impact the economy and the consumers in general?
Inflation is the continuous increase of prices of goods and services over time in an economy. This affects the purchasing power of money. This means that over time you buy less for the same amount of money. For example, if you were able to buy a litre of milk for Rs 48 five years ago, it may cost you Rs 62 today due to inflation. So, in effect, you would buy a smaller quantity of milk for the same amount of money you paid over five years ago.
Similarly, compare the prices of a vada pav. A vada pav was priced at Rs 10-Rs 15 five years ago. Today, it would cost you Rs 20-Rs 25. So, you could have bought almost two vada pavs five years ago for the amount you are paying now for a single one now. This is an example of inflation or the gradual decline in the purchasing power of money.
If the input cost increases, the prices of goods and services increase. With rising crude oil prices, the input and transportation costs increase, and thus, the prices of products or services may increase.
Prices can also increase if demand is higher than supply. For example, if there is an adverse monsoon effect (a deficit or excess rainfall that can cause droughts or floods), then the agricultural produce may become limited. As the availability of fruits and vegetables is less while demand remains high, it leads to an increase in prices.
When inflation rises sharply and suddenly, it impacts consumers negatively as the cost of goods and services increases but incomes do not increase proportionately.
Inflation also indicates the availability of money with the public to spend in an economy. As people spend more, the economy thrives and the production increases and this creates jobs. Moderate level of inflation is good for an economy and prevents it from going into recession.
