Effect of Inflation On Various Commodities

Abstract

As we all know inflation rate refers to a general rise in prices measured against a standard level of purchasing power. This is discussed in the context of continuous rise of prices. When there is inflation, currency loses its purchasing power. This may be caused by either demand pull or cash push. In India inflation is measured based on the Wholesale Price Index (WPI), where as in developed countries like US, they use Consumer Price Index (CPI) as the basis. Presently in India, the index is calculated taking into account price levels of 1100 items and the year 2004-05 as base year. Inflation affects different categories of people in varying measures. Prices of some goods and services rise faster than others, where as for some goods and services, there may not be any remarkable change. The poor and the middle class suffer a lot because of continuous rise of prices as their wages and salaries are almost fixed. On the other hand, people with variable incomes benefit a lot out of it. In this paper it is attempted to study the influence of inflation on various commodity prices to understand how in real sense it is changing the consumption function. In this analysis it is revealed surprisingly that the prices of primary articles and food grains continually are increasing irrespective of variations in inflation. It is well known fact that for these basic needs only, major share of the income of poor and middle class people is spent. This means a continuous increase in burden on them. It is also observed that some commodity prices are varying in line with inflation and  for some others no much variation is seen. From this study, it is felt that there is an immediate attention required to change the weight-ages given to various commodities in calculating the inflation to reflect reality.