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How rising prices affect people differently, and what it says about the economy

Connie Myers has always loved a good sale. Two years ago, she would shop sales at her local grocery stores in Winchester Bay, Oregon, but often pay full price for most other products. However during the pandemic, she noticed her dollar didn’t stretch as far.

Myers clipped coupons much more religiously at the start of the pandemic. She had a feeling prices would continue to rise after the global toilet paper shortage, a feeling reflected in polls about people’s worries about the country’s overall financial outlook. The 59-year-old is retired and lives on a fixed income of social security and disability payments, so she can’t afford to go over her budget. Now, Myers plans her shopping around the coupons she’s collected, and it’s rare for her to pay full price for an item.

“I’ve been a single parent my entire life, so I know how to be frugal,” she said. “But still for a family, if I had a child right now, oh my gosh. I can just imagine what it would be like.”

Food prices rose around 9 percent between January 2020 and October 2021, according to Econofact . Food prices have been particularly volatile throughout the coronavirus pandemic, like in March 2020, when empty store shelves were a familiar sight.

In the past 12 months, inflation rose about 6.2 percent, according to the Labor Department. This is the largest 12-month inflation increase since 1990 .

WATCH MORE: What’s driving U.S. inflation and how price pressures could be reduced

Alongside groceries, people in the U.S. have seen prices rise for cars, gas, rent and other necessities. For lower-earning households, these increases have been especially challenging.

At the same time, many experts say the economy is showing other signs of strength. Let’s take a closer look at the data.

What data supports that the economy is good right now?

Inflation and the unemployment rate are two common indicators for evaluating the health of the economy. While inflation has increased, the unemployment rate fell to 4.6 percent at the end of October — the lowest since April 2020, when the unemployment rate hit a historic 14.8 percent at the beginning of the pandemic.

“The cost of unemployment to the individuals who are unemployed is a lot higher than the cost of inflation,” said Michael Klein, an economics professor at Tufts University and executive editor of Econofact. “An increase in the unemployment rate by two percentage points, I would say, is more damaging than an increase of inflation by two percentage points.”

But the impact of being unemployed is only felt by those who are unemployed, while inflation can be felt by everybody, which can sometimes lead to a misunderstanding of the economy, Klein said.

The nation’s gross domestic product — the total output of goods and services — has continued to grow as well, increasing by 2 percent in the last quarter. This is a slower growth than previous quarters, but according to Stanford University a GDP increase of about 2 percent is a sign of a steady economy. Economists say this shows recovery from the 31.2 percent drop in GDP in the second quarter of 2020 — the largest drop in U.S. history .

Some of the increases people are feeling right now could be considered catching up in prices as the economy recovers from the pandemic, economists told the PBS NewsHour.

WATCH MORE: Inflation a major issue facing the Biden administration

Klein said these price increases are following a time when prices were at historic lows — when the economy was unhealthy — so it feels particularly jarring, especially to those with lower income. But people are returning to work, some lower-paying jobs are offering higher wages, and the general economy has grown.

“In September, inflation was about 5.4 percent [over the previous year]. If you took the annual rate by looking back two years instead of one year, inflation was only 3.4 percent,” Klein said. “If you normalize them more by looking back two years when we weren’t in the midst of this terrible downturn, then inflation doesn’t look as big.”

For example, data from the Federal Reserve Bank of St. Louis shows when compared to one year ago, food and beverage prices in U.S. cities in October are up 5.1 percent. But compared to two years ago, the inflation rate is 4.5 percent, and 3.5 percent when compared with three years ago.

Experts are not sure how long rising prices will last, but it’s something the Federal Reserve is watching closely.

According to Econofact , the average rate of inflation for the past decade averages about 1.7 percent — just below what the Federal Reserve deems an acceptable rate , which is around 2 percent.

How inflation affects us differently

There are other conditions that can affect how certain groups of people experience increasing inflation. For instance, SNAP benefits and social security payments often increase a small percentage each year to account for general increases in the cost of living. But for food, current monthly price increases outpace benefit increases, which can make it difficult for people who are on fixed incomes or unable to work.

“Increased prices erode peoples’ buying power,” said Jayson Lusk, a food economist and professor at Purdue University. He added that people can make decisions to buy different food items that are cheaper than they’re used to to mitigate price increases, but that isn’t always feasible or ideal.

Economists have attributed the heightened prices to different factors, from wage increases to the pandemic’s domino-like effect on the supply chain. Lusk said that while prices have increased, so have wages in many industries. Wages for meat-packing jobs, for example, have increased nearly 20 percent due to labor scarcity, which has put upward pressure on meat prices. But that also has given those who work in the meat industry more buying power, because their wage increases outpace price increases.

READ MORE: How the supply chain caused current inflation, and why it might be here to stay

“If you’re on a fixed pension or you’re stuck in a salaried position that’s not hourly and maybe doesn’t get changed as frequently, you’re not as well off. But if you kind of look across the board, across the economy, wages have been increasing,” Lusk said. He added that focusing on a person’s buying power may be a better measure of financial well-being than just prices alone.

Neil Berger teaches at a Title 1 school in Phoenix, Arizona — a state with one of the lowest teacher salaries in the nation. He and his wife, who works at the same school, have had to cut back on saving for their retirement and switched to buying groceries that have more longevity, like frozen produce and less meat. They’ve also begun gardening in order to grow their own produce.

Berger and his wife bought a house in February 2020, and with the skyrocketing inflation in the housing market they were able to refinance their mortgage to find more balance. But for his students’ families, Berger said, finding an affordable place to rent seems impossible, and parents talk to him about the increased grocery prices often.

The Bureau of Labor Statistics found that households in the lowest 20 percent of income spend 10.8 percent of their budget on food while those in the highest 20 percent spend 6.8 percent of their budget on food.

Eva Aleman, 54, said she cannot work because of her disabilities and lives in public housing in Jacksonville, Florida. She receives a fixed income and SNAP benefits, and is struggling to buy groceries. She said it’s been difficult because prices have gone up, but her income has stayed the same.

The only meat she said she can afford is chicken, and it has to be in small portions. She buys fruit and vegetables, and cut back on milk, buying 1 gallon a month instead of weekly, she said.

Local churches and food pantries give out groceries, she said, but they often run low on products. Aleman also said churches also don’t tend to carry Hispanic foods, which can make it difficult to shop for meals that align with her culture. She said her neighbors in her complex, who are all over 60, are also struggling. Latinos are among people who were most affected by the economic impact of COVID-19, experiencing more job loss, less pandemic relief, and more difficulty making payments, according to a report by Brookings.

“We need more sympathy and empathy for us and ask us, you know, what is that we need? We need help with the struggling and not being able to buy what we need to eat,” Aleman said.

Chloe Jones is the Roy W. Howard fellow for the PBS NewsHour. Connect with her at [email protected] or on Twitter @chloeleejones.

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How inflation, climate change and energy costs are pushing up food prices

World Nov 28

What is inflation?

Inflation has been top of mind for many over the past few years. But how long will it persist? In June 2022, inflation in the United States jumped to 9.1 percent, reaching the highest level since February 1982. The inflation rate has since slowed in the United States , as well as in Europe , Japan , and the United Kingdom , particularly in the final months of 2023. But even though global inflation is higher than it was before the COVID-19 pandemic, when it hovered around 2 percent, it’s receding to historical levels . In fact, by late 2022, investors were predicting that long-term inflation would settle around a modest 2.5 percent. That’s a far cry from fears that long-term inflation would mimic trends of the 1970s and early 1980s—when inflation exceeded 10 percent.

Get to know and directly engage with senior McKinsey experts on inflation.

Ondrej Burkacky is a senior partner in McKinsey’s Munich office, Axel Karlsson is a senior partner in the Stockholm office, Fernando Perez is a senior partner in the Miami office, Emily Reasor is a senior partner in the Denver office, and Daniel Swan is a senior partner in the Stamford, Connecticut, office.

Inflation refers to a broad rise in the prices of goods and services across the economy over time, eroding purchasing power for both consumers and businesses. Economic theory and practice, observed for many years and across many countries, shows that long-lasting periods of inflation are caused in large part by what’s known as an easy monetary policy . In other words, when a country’s central bank sets the interest rate too low or increases money growth too rapidly, inflation goes up. As a result, your dollar (or whatever currency you use) will not go as far  today as it did yesterday. For example: in 1970, the average cup of coffee in the United States cost 25 cents; by 2019, it had climbed to $1.59. So for $5, you would have been able to buy about three cups of coffee in 2019, versus 20 cups in 1970. That’s inflation, and it isn’t limited to price spikes for any single item or service; it refers to increases in prices across a sector, such as retail or automotive—and, ultimately, a country’s economy.

How does inflation affect your daily life? You’ve probably seen high rates of inflation reflected in your bills—from groceries to utilities to even higher mortgage payments. Executives and corporate leaders have had to reckon with the effects of inflation too, figuring out how to protect margins while paying more for raw materials.

But inflation isn’t all bad. In a healthy economy, annual inflation is typically in the range of two percentage points, which is what economists consider a sign of pricing stability. When inflation is in this range, it can have positive effects: it can stimulate spending and thus spur demand and productivity when the economy is slowing down and needs a boost. But when inflation begins to surpass wage growth, it can be a warning sign of a struggling economy.

Introducing McKinsey Explainers : Direct answers to complex questions

Inflation may be declining in many markets, but there’s still uncertainty ahead: without a significant surge in productivity, Western economies may be headed for a period of sustained inflation or major economic reset , as Japan has experienced in the first decades of the 21st century.

What does seem to be changing are leaders’ attitudes. According to the 2023 year-end McKinsey Global Survey on economic conditions , respondents reported less fear about inflation as a risk to global and domestic economic growth . But this sentiment varies significantly by region: European respondents were most concerned about the effects of inflation, whereas respondents in North America offered brighter views.

What causes inflation?

Monetary policy is a critical driver of inflation over the long term. The current high rate of inflation is a result of increased money supply , high raw materials costs , labor mismatches , and supply disruptions —exacerbated by geopolitical conflict .

In general, there are two primary types, or causes, of short-term inflation:

• Demand-pull inflation occurs when the demand for goods and services in the economy exceeds the economy’s ability to produce them. For example, when demand for new cars recovered more quickly than anticipated from its sharp dip at the beginning of the COVID-19 pandemic, an intervening shortage  in the supply of semiconductors  made it hard for the automotive industry to keep up with this renewed demand. The subsequent shortage of new vehicles resulted in a spike in prices for new and used cars.
• Cost-push inflation occurs when the rising price of input goods and services increases the price of final goods and services. For example, commodity prices spiked sharply  during the pandemic as a result of radical shifts in demand, buying patterns, cost to serve, and perceived value across sectors and value chains. To offset inflation and minimize impact on financial performance, industrial companies were forced to increase prices for end consumers.

Learn more about McKinsey’s Growth, Marketing & Sales  Practice.

What are some periods in history with high inflation?

Economists frequently compare the current inflationary period with the post–World War II era , when price controls, supply problems, and extraordinary demand in the United States fueled double-digit inflation gains—peaking at 20 percent in 1947—before subsiding at the end of the decade. Consumption patterns today have been similarly distorted, and supply chains have been disrupted  by the pandemic.

The period from the mid-1960s through the early 1980s in the United States, sometimes called the “Great Inflation,” saw some of the country’s highest rates of inflation, with a peak of 14.8 percent in 1980. To combat this inflation, the Federal Reserve raised interest rates to nearly 20 percent. Some economists attribute this episode partially to monetary policy mistakes rather than to other causes, such as high oil prices. The Great Inflation signaled the need for public trust  in the Federal Reserve’s ability to lessen inflationary pressures.

Inflation isn’t solely a modern-day phenomenon, of course. One very early example of inflation comes from Roman times, from around 200 to 300 CE. Roman leaders were struggling to fund an army big enough to deal with attackers from multiple fronts. To help, they watered down  the silver in their coinage, causing the value of money to slowly fall—and inflation to pick up. This led merchants to raise their prices, causing widespread panic. In response, the emperor Diocletian issued what’s now known as the Edict on Maximum Prices, a series of price and wage controls designed to stop the rise of prices and wages (one helpful control was a maximum price for a male lion). But because the edict didn’t address the root cause of inflation—the impure silver coin—it didn’t fix the problem.

How is inflation measured?

Statistical agencies measure inflation first by determining the current value of a “basket” of various goods and services consumed by households, referred to as a price index. To calculate the rate of inflation over time, statisticians compare the value of the index over one period with that of another. Comparing one month with another gives a monthly rate of inflation, and comparing from year to year gives an annual rate of inflation.

In the United States, the Bureau of Labor Statistics publishes its Consumer Price Index (CPI), which measures the cost of items that urban consumers buy out of pocket. The CPI is broken down by region and is reported for the country as a whole. The Personal Consumption Expenditures (PCE) price index —published by the US Bureau of Economic Analysis—takes into account a broader range of consumer spending, including on healthcare. It is also weighted by data acquired through business surveys.

How does inflation affect consumers and companies differently?

Inflation affects consumers most directly, but businesses can also feel the impact:

• Consumers lose purchasing power when the prices of items they buy, such as food, utilities, and gasoline, increase. This can lead to household belt-tightening and growing pessimism about the economy .
• Companies lose purchasing power and risk seeing their margins decline , when prices increase for inputs used in production. These can include raw materials like coal and crude oil , intermediate products such as flour and steel, and finished machinery. In response, companies typically raise the prices of their products or services to offset inflation, meaning consumers absorb these price increases. The challenge for many companies is to strike the right balance between raising prices to cover input cost increases while simultaneously ensuring that they don’t raise prices so much that they suppress demand.

How can organizations respond to high inflation?

During periods of high inflation, companies typically pay more for materials , which decreases their margins. One way for companies to offset losses and maintain margins is by raising prices for consumers. However, if price increases are not executed thoughtfully, companies can damage customer relationships and depress sales —ultimately eroding the profits they were trying to protect.

When done successfully, recovering the cost of inflation for a given product can strengthen relationships and overall margins. There are five steps companies can take to ADAPT  (adjust, develop, accelerate, plan, and track) to inflation:

• Adjust discounting and promotions and maximize nonprice levers. This can include lengthening production schedules or adding surcharges and delivery fees for rush or low-volume orders.
• Develop the art and science of price change. Instead of making across-the-board price changes, tailor pricing actions to account for inflation exposure, customer willingness to pay, and product attributes.
• Accelerate decision making tenfold. Establish an “inflation council” that includes dedicated cross-functional, inflation-focused decision makers who can act quickly and nimbly on customer feedback.
• Plan options beyond pricing to reduce costs. Use “value engineering” to reimagine a portfolio and provide cost-reducing alternatives to price increases.
• Track execution relentlessly. Create a central supporting team to address revenue leakage and to manage performance rigorously. Traditional performance metrics can be less reliable when inflation is high .

Beyond pricing, a variety of commercial and technical levers can help companies deal with price increases in an inflationary market , but other sectors may require a more tailored response to pricing.

Learn more about our Financial Services , Industrials & Electronics , Operations , Strategy & Corporate Finance , and  Growth, Marketing & Sales Practices.

How can CEOs help protect their organizations against uncertainty during periods of high inflation?

In today’s uncertain environment, in which organizations have a much wider range of stakeholders, leaders must think about performance beyond short-term profitability. CEOs should lead with the complete business cycle and their complete slate of stakeholders in mind.

CEOs need an inflation management playbook , just as central bankers do. Here are some important areas to keep in mind while scripting it:

• Design. Leaders should motivate their organizations to raise the profile of design  to a C-suite topic. Design choices for products and services are critical for responding to price volatility, scarcity of components, and higher production and servicing costs.
• Supply chain. The most difficult task for CEOs may be convincing investors to accept supply chain resiliency as the new table stakes. Given geopolitical and economic realities, supply chain resiliency has become a crucial goal for supply chain leaders, alongside cost optimization.
• Procurement. CEOs who empower their procurement  organizations can raise the bar on value-creating contributions. Procurement leaders have told us time and again that the current market environment is the toughest they’ve experienced in decades. CEOs are beginning to recognize that purchasing leaders can be strategic partners by expanding their focus beyond cost cutting to value creation.
• Feedback. A CEO can take a lead role in playing back the feedback the organization is hearing. In today’s tight labor market, CEOs should guide their companies to take a new approach to talent, focusing on compensation, cultural factors, and psychological safety .
• Pricing. Forging new pricing relationships with customers will test CEOs in their role as the “ultimate integrator.” Repricing during inflationary times is typically unpleasant for companies and customers alike. With setting new prices, CEOs have the opportunity to forge deeper relationships with customers, by turning to promotions, personalization , and refreshed communications around value.
• Agility. CEOs can strive to achieve a focus based more on strategic action and less on firefighting. Managing the implications of inflation calls for a cross-functional, disciplined, and agile response.

A practical example: How is inflation affecting the US healthcare industry?

Consumer prices for healthcare have rarely risen faster than the rate of inflation—but that’s what’s happening today. The impact of inflation on the broader economy has caused healthcare costs to rise faster than the rate of inflation. Experts also expect continued labor shortages in healthcare—gaps of up to 450,000 registered nurses and 80,000 doctors —even as demand for services continues to rise. This drives up consumer prices and means that higher inflation could persist. McKinsey analysis as of 2022 predicted that the annual US health expenditure is likely to be $370 billion higher by 2027 because of inflation.

This climate of risk could spur healthcare leaders to address productivity, using tech levers to boost productivity while also reducing costs. In order to weather the storm, leaders will need to quickly set high aspirations, align their organizations around them, and execute with speed .

What is deflation?

If inflation is one extreme of the pricing spectrum, deflation is the other. Deflation occurs when the overall level of prices in an economy declines and the purchasing power of currency increases. It can be driven by growth in productivity and the abundance of goods and services, by a decrease in demand, or by a decline in the supply of money and credit.

Generally, moderate deflation positively affects consumers’ pocketbooks, as they can purchase more with less money. However, deflation can be a sign of a weakening economy, leading to recessions and depressions. While inflation reduces purchasing power, it also reduces the value of debt. During a period of deflation, on the other hand, debt becomes more expensive. And for consumers, investments such as stocks, corporate bonds, and real estate become riskier.

A recent period of deflation in the United States was the Great Recession, between 2007 and 2008. In December 2008, more than half of executives surveyed by McKinsey  expected deflation in their countries, and 44 percent expected to decrease the size of their workforces.

When taken to their extremes, both inflation and deflation can have significant negative effects on consumers, businesses, and investors.

For more in-depth exploration of these topics, see McKinsey’s Operations Insights  collection. Learn more about Operations consulting , and check out operations-related job opportunities  if you’re interested in working at McKinsey.

Articles referenced:

• “ Investing in productivity growth ,” March 27, 2024, Jan Mischke , Chris Bradley , Marc Canal, Olivia White , Sven Smit , and Denitsa Georgieva
• “ Economic conditions outlook during turbulent times, December 2023 ,” December 20, 2023
• “ Forward Thinking on why we ignore inflation—from ancient times to the present—at our peril with Stephen King ,” November 1, 2023
• “ Procurement 2023: Ten CPO actions to defy the toughest challenges ,” March 6, 2023, Roman Belotserkovskiy , Carolina Mazuera, Marta Mussacaleca , Marc Sommerer, and Jan Vandaele
• “ Why you can’t tread water when inflation is persistently high ,” February 2, 2023, Marc Goedhart and Rosen Kotsev
• “ Markets versus textbooks: Calculating today’s cost of equity ,” January 24, 2023, Vartika Gupta, David Kohn, Tim Koller , and Werner Rehm  
• “ Inflation-weary Americans are increasingly pessimistic about the economy ,” December 13, 2022, Gonzalo Charro, Andre Dua , Kweilin Ellingrud , Ryan Luby, and Sarah Pemberton
• “ Inflation fighter and value creator: Procurement’s best-kept secret ,” October 31, 2022, Roman Belotserkovskiy , Ezra Greenberg , Daphne Luchtenberg, and Marta Mussacaleca
• “ Prime Numbers: Rethink performance metrics when inflation is high ,” October 28, 2022, Vartika Gupta, David Kohn, Tim Koller , and Werner Rehm
• “ The gathering storm: The threat to employee healthcare benefits ,” October 20, 2022, Aditya Gupta , Akshay Kapur , Monisha Machado-Pereira , and Shubham Singhal
• “ Utility procurement: Ready to meet new market challenges ,” October 7, 2022, Roman Belotserkovskiy , Abhay Prasanna, and Anton Stetsenko
• “ The gathering storm: The transformative impact of inflation on the healthcare sector ,” September 19, 2022, Addie Fleron, Aneesh Krishna , and Shubham Singhal
• “ Pricing during inflation: Active management can preserve sustainable value ,” August 19, 2022, Niels Adler and Nicolas Magnette
• “ Navigating inflation: A new playbook for CEOs ,” April 14, 2022, Asutosh Padhi , Sven Smit , Ezra Greenberg , and Roman Belotserkovskiy
• “ How business operations can respond to price increases: A CEO guide ,” March 11, 2022, Andreas Behrendt ,  Axel Karlsson , Tarek Kasah, and  Daniel Swan
• “ Five ways to ADAPT pricing to inflation ,” February 25, 2022,  Alex Abdelnour , Eric Bykowsky, Jesse Nading,  Emily Reasor , and Ankit Sood
• “ How COVID-19 is reshaping supply chains ,” November 23, 2021,  Knut Alicke ,  Ed Barriball , and Vera Trautwein
• “ Navigating the labor mismatch in US logistics and supply chains ,” December 10, 2021,  Dilip Bhattacharjee , Felipe Bustamante, Andrew Curley, and  Fernando Perez
• “ Coping with the auto-semiconductor shortage: Strategies for success ,” May 27, 2021,  Ondrej Burkacky , Stephanie Lingemann, and Klaus Pototzky

This article was updated in April 2024; it was originally published in August 2022.

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Short Essay: Rising Prices

Writing a short essay on the topic of rising prices requires a careful examination of economic principles, an understanding of the factors driving price increases, and the implications for both individuals and society. This essay should not only explain why prices are rising but also discuss the impact on different segments of the population and possible solutions or mitigations. Here is a structured approach to crafting a concise, informative, and persuasive essay on rising prices.

Table of Contents

Introduction

Begin your essay with an engaging introduction that captures the reader’s attention. You might start with a recent statistic or news headline that highlights the severity of price inflation in a particular sector, such as housing or healthcare. Introduce the concept of inflation and briefly explain its relevance to everyday life. Your thesis statement should outline the main points you will cover: the causes of rising prices, their effects on different demographics, and potential policy responses.

Causes of Rising Prices

Dedicate the first body paragraph to exploring the causes behind rising prices. Typically, these can be classified into demand-pull factors, where demand outstrips supply; cost-push factors, where the cost of production increases; and built-in inflation, which involves the adaptation of expectations around inflation itself.

• Demand-Pull Inflation : Describe scenarios where increased demand in a recovering economy leads to higher prices.
• Cost-Push Inflation : Discuss how increases in the cost of raw materials or wages can lead businesses to raise prices to maintain profit margins.
• Built-In Inflation : Explain the psychological expectation of inflation that can lead to a vicious cycle of price rises.

Use real-world examples to illustrate these points, such as recent fluctuations in energy prices due to geopolitical tensions or supply chain disruptions affecting consumer goods.

Impact of Rising Prices

The second body paragraph should analyze the impact of rising prices on various segments of the society. Focus on:

• Consumers : Discuss how rising prices decrease consumer purchasing power and the resultant effect on living standards.
• Businesses : Explain how businesses might suffer from increased production costs or benefit from increased revenue, depending on their ability to pass on costs to consumers.
• Economy : Explore the broader economic implications, such as the potential for a slowdown in economic growth due to decreased consumer spending or the risk of stagflation.

Highlight specific vulnerable groups, such as fixed-income retirees or low-income families, and discuss the broader social implications, such as increased poverty rates.

Solutions and Mitigations

In your third paragraph, propose solutions or policy measures that could address or mitigate the effects of rising prices. Discuss various approaches such as:

• Monetary Policy : Explain how central banks could adjust interest rates or use other monetary tools to control inflation.
• Fiscal Policy : Discuss government interventions that could help, such as subsidies for essential goods, tax relief measures, or increased minimum wages.
• Regulatory Measures : Consider the role of price controls or anti-price gouging laws in emergency situations.

Conclude your essay by summarizing the main points discussed and reaffirming the significance of understanding and addressing rising prices. End with a call to action or a contemplative statement about the future economic outlook, emphasizing the need for vigilant economic policies and personal financial planning.

Rising Prices Essay Example #1

Rising prices have become a significant concern for consumers and businesses alike. The cost of goods and services has been increasing rapidly, making it difficult for those with lower incomes to afford basic necessities. In this essay, we will explore the causes of rising prices, the impact it has on consumers and the economy, and what can be done to address this issue.

One of the primary factors that contribute to rising prices is inflation. Inflation occurs when the general level of prices for goods and services increases over time. This can happen when there is too much money in circulation, leading to an increase in demand for goods and services, which in turn drives up prices.

Another factor that contributes to rising prices is supply chain disruptions. This can happen when there is a shortage of raw materials, transportation issues or natural disasters that prevent goods from reaching their intended destinations. These disruptions can lead to a decrease in supply and an increase in prices.

Lastly, changes in consumer behavior can also contribute to rising prices. For example, if consumers suddenly start buying a particular product in large quantities, it can lead to a shortage of that product, which in turn drives up prices.

Rising prices can have negative effects on consumers, particularly those with lower incomes. When the cost of basic necessities like food and housing increases, it can be difficult for low-income families to make ends meet. This can lead to increased poverty and a decline in the standard of living.

Moreover, rising prices can also have an impact on businesses. Higher prices can lead to a decrease in demand for products and services, resulting in lower profits for businesses. This can lead to layoffs, reduced investment, and a decline in overall economic growth.

To address the issue of rising prices, governments can implement policies such as price controls or subsidies. Price controls limit the amount that businesses can charge for goods and services, while subsidies provide financial assistance to businesses to help them offset the cost of production.

Another way to address the issue of rising prices is to increase the supply of goods and services. Governments can invest in infrastructure projects to improve transportation and communication networks, which can help to reduce supply chain disruptions. Additionally, governments can encourage businesses to invest in research and development to create new products and increase competition in the marketplace.

In conclusion, rising prices are a complex issue with far-reaching consequences. While there are no easy solutions, governments and businesses must work together to address this issue. Through thoughtful policies and investments, we can help to ensure that goods and services remain affordable for all, and that our economy remains strong and stable.

Rising Prices Essay Example #2

Rising prices have become a significant concern for individuals and businesses worldwide. The increase in prices can be attributed to various factors, such as inflation, supply and demand imbalances, and changes in government policies. This essay will explore the causes and effects of rising prices and provide strategies for managing them.

One of the main causes of rising prices is inflation. Inflation occurs when the general level of prices in an economy increases, resulting in a decrease in the purchasing power of money. This can lead to a rise in the cost of goods and services, making it difficult for individuals and businesses to afford them. In addition, supply and demand imbalances can also contribute to rising prices. For instance, if demand for a particular product increases, and its supply remains constant, the price will go up. Similarly, if supply increases, and the demand remains constant, the price will go down. Finally, changes in government policies, such as taxes and tariffs, can also affect prices. For example, if the government imposes a tax on a particular product, the price of that product will increase.

The impact of rising prices can be felt by individuals and businesses alike. For individuals, rising prices can lead to a decrease in purchasing power, making it difficult to afford basic necessities such as food, housing, and healthcare. This can also result in a decrease in the standard of living. For businesses, rising prices can lead to reduced profitability, making it difficult to invest in new projects or expand operations. In addition, businesses may be forced to pass on the increased costs to consumers, resulting in a decrease in demand for their products or services.

To manage rising prices, individuals and businesses can adopt various strategies. For instance, budgeting can help individuals identify areas where they can cut costs and prioritize their spending. Seeking out lower-cost alternatives, such as generic brands or second-hand goods, can also help reduce expenses. Businesses can also explore ways to reduce costs, such as outsourcing or implementing cost-saving measures. Finally, individuals and businesses can advocate for policy changes that address underlying causes of rising prices, such as inflation or supply and demand imbalances.

Rising prices have become a significant concern for individuals and businesses worldwide. The increase in prices can be caused by various factors, such as inflation, supply and demand imbalances, and changes in government policies. The impact of rising prices can be felt by individuals and businesses, leading to decreased purchasing power and reduced profitability. Strategies for managing rising prices may include budgeting, seeking out lower-cost alternatives, and advocating for policy changes that address underlying causes. By adopting these strategies, individuals and businesses can mitigate the effects of rising prices and maintain their financial stability.

Rising Prices Essay Example #3

Rising prices have become a major concern for individuals and governments around the world. Prices of goods and services have been increasing steadily, which has affected the purchasing power of consumers. The cause of rising prices can be attributed to a number of factors such as inflation, supply and demand, and government policies. In this essay, we will explore the reasons behind the rising prices, the impact on consumers, and the overall economy.

The first reason for rising prices is inflation. Inflation is the rate at which the general level of prices for goods and services is rising, and subsequently, purchasing power is falling. Inflation can be caused by factors such as an increase in the money supply, a decrease in the supply of goods, and rising production costs. When the money supply increases, there is more money available to spend, which drives up demand and prices. On the other hand, when the supply of goods decreases, demand remains the same, but the price of the goods increases. Rising production costs such as labor, raw materials, and energy also contribute to higher prices.

The second reason for rising prices is the law of supply and demand. When a product is in high demand, producers can charge more for it, and the price will rise. Conversely, when there is an oversupply of a product, the price will fall. This can occur due to a change in consumer preferences, changes in technology or production methods, or changes in the availability of raw materials. Consumers may have to adjust their spending habits or budgets to accommodate rising prices, which can be challenging for those on a fixed income or with limited financial resources.

The third reason for rising prices is government policies. Governments can influence prices through various policies such as taxes and subsidies. For example, if the government increases taxes on a particular product, the price of that product will increase. Similarly, if the government provides subsidies to a particular industry, the price of goods produced by that industry may decrease. Rising prices can have a negative impact on low-income households, as they are more likely to be affected by price changes. In addition, rising prices can also affect the overall economy by reducing consumer spending and slowing down economic growth.

In conclusion, rising prices can be caused by various factors such as inflation, supply and demand, and government policies. Consumers may have to adjust their spending habits or budgets to accommodate these price changes, which can be challenging for those on a fixed income or with limited financial resources. Rising prices can also have a negative impact on low-income households and the overall economy. It is important for governments to monitor price changes and implement policies that can help stabilize prices and reduce the impact on consumers and the economy.

Writing Tips

• Clarity and Precision : Use clear and precise language to explain economic concepts.
• Use Current Data : Support your arguments with the latest data and statistics.
• Balanced Analysis : Provide a balanced view by discussing both negative and positive effects of rising prices.
• Proofread : Ensure grammatical accuracy and logical flow of arguments.

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Essay on Price Rise in India

Students are often asked to write an essay on Price Rise in India in their schools and colleges. And if you’re also looking for the same, we have created 100-word, 250-word, and 500-word essays on the topic.

Let’s take a look…

100 Words Essay on Price Rise in India

Introduction.

Price rise in India is a major concern affecting the economy and lives of people. It refers to the increase in the cost of goods and services.

Multiple factors cause price rise. High demand for products, less supply, inflation, and tax policies are major contributors.

Price rise affects everyone. It reduces purchasing power, increases poverty, and creates economic instability.

To control price rise, the government can regulate taxes, enhance production, and control inflation.

Price rise is a complex issue in India. Addressing it requires effective economic policies and management.

250 Words Essay on Price Rise in India

India, a country of vast economic potential, is currently grappling with a significant issue – price rise. The persistent escalation in the prices of goods and services is not only affecting the common man’s budget but also posing a threat to the country’s economic stability.

The root causes of price rise in India are multifaceted. One of the main culprits is the supply-demand disparity. With a population of over a billion, demand often outstrips supply, leading to inflation. Another contributing factor is the increase in production and labour costs, which are subsequently passed on to consumers. Additionally, policy decisions, like the implementation of GST, have also contributed to this phenomenon.

Impact on the Economy

The impact of price rise on the Indian economy is profound. It erodes the purchasing power of the consumer, leading to a decrease in demand and economic slowdown. The poor and middle class are hit hardest, as they struggle to keep up with escalating living costs. Moreover, it hampers foreign investments, as high inflation rates often indicate economic instability.

Conclusion and Solutions

To combat the issue of price rise, India needs to adopt a multi-pronged strategy. This includes improving agricultural productivity to increase supply, implementing sound fiscal policies to control inflation, and encouraging domestic industries to reduce dependence on imports. Additionally, making the economy more competitive can help keep prices in check. Indeed, the issue of price rise is a complex one, but with concerted efforts, it can be managed effectively.

500 Words Essay on Price Rise in India

Price rise in India is a pressing issue that has been a cause of concern for both the government and the citizens. This phenomenon refers to the increase in the prices of essential commodities, which affects the economy and the standard of living of the people.

The Gravity of the Issue

The incessant rise in prices, especially of essential commodities, has a profound impact on the daily lives of people. It leads to a decrease in the purchasing power of the common man, thereby widening the gap between the rich and the poor. The low and middle-income groups are the most affected as they struggle to afford basic necessities.

Reasons Behind Price Rise

The reasons for the price rise in India are multifaceted. One of the key causes is the increase in the cost of production. As the cost of raw materials, labor, and transportation rises, producers pass on these costs to consumers in the form of increased prices.

Inflation also plays a significant role in the price rise. The Reserve Bank of India (RBI) uses monetary policy to control inflation, but external factors, such as global economic conditions and fluctuations in international commodity prices, often hamper these efforts.

Moreover, supply chain disruptions due to reasons like natural disasters, pandemics, or policy changes can lead to a shortage of goods, thereby increasing their prices.

The persistent price rise can adversely affect the economy. High inflation rates can lead to economic instability, affecting investment and economic growth. It can also result in increased borrowing costs, thereby affecting business expansion and job creation.

Furthermore, high prices can lead to social unrest as people struggle to meet their basic needs, which in turn can have serious political implications.

Measures to Control Price Rise

To control the price rise, the government needs to take both short-term and long-term measures. Short-term measures can include reducing taxes on essential commodities, releasing buffer stocks, and imposing price controls.

In the long term, improving supply chain efficiency, investing in infrastructure, and promoting competition can help in controlling prices. The government should also focus on policies that promote economic stability and inclusive growth.

While price rise is a complex issue with no quick fix, it is crucial for the Indian government to take proactive measures to mitigate its impact. The focus should be on creating a robust and resilient economy that can withstand external shocks, thereby ensuring the welfare of its citizens. It is only through a combination of policy measures, economic reforms, and public awareness that the issue of price rise can be effectively tackled.

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Essay on Rising Prices in English for Students and Childrens

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Essay on Rising Prices/Price Hike in English for Children and Students

Essay on Rising Prices/Price Hike in English: Price rise or price hike are the terms used to denote rise in price of goods and services. The economic term for rising prices or price hike is “inflation”. Fluctuations in prices of goods and services are common in world economies; though, it directly affects the consumer. While a drop in prices is good news for middle and lower class consumers; an increase might cause financial constraints to them. A price hike in the items consumed daily in the households, affects the consumer more. Such items include, fruits, vegetables, oils, LPG Cylinders, etc. Every price hike on an individual item affects a specific set of consumers, like, a hike in fuel price; affect the transport industry more than private users.

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Long and Short Essay on Rising Prices/Price Hike in English

• We are providing below long and short essay on rising prices or price hike in English.
• These essays have been written in simple and easy to remember language to let you use them whenever required.
• The rising prices or price hike essay will give you an insight of reasons and effects of price hike on general masses.
• You can use these essays in your school assignments and various other competitions or general debates on the topic of rising price or price hike.

Essay on Price Hike in India and Common Man 200 words

Price hike is a common phenomenon and happens in most economies. It is a reality in India as well. However, this reality isn’t only because of the natural progress of economics but also because of governmental policies and taxation, all of which contribute to the price of goods and services that eventually reach the common man.

Price Hike and the Common Man

For the common man, a hike in prices is always a matter of some concern. He has to make constant readjustments to his monthly budget and even give up using certain products and services since he can no longer afford them. Add in the fact that salaries don’t increase at a commensurate rate and the ability of the common man to afford many things goes down significantly.

What is also a matter of concern is that when the price of certain items is hiked, prices of other essential goods and services also go up. For example, if the price of petrol or diesel is hiked, the common man has to adjust that in his budget. But this increase in prices also means increased prices for public transport and goods that are transported across the country using petrol or diesel fuelled transport. In other words, because the price of petrol increases, the price of vegetables and grains may also increase.

Essay on Rising Prices Inflation 250 words

When the prices of goods and commodities increase over a period of time in a sustained manner, the phenomenon is called inflation. It is measured in terms of an annual percentage change in a price index, which is normally the consumer price index. In simple terms, inflation means that your purchasing power is reduced and a rupee doesn’t go as far as it used to. Therefore, when the value of money goes down and prices rise, you have inflation.

Causes of Rising Prices Inflation

While academics and economists haven’t agreed on one particular theory about the cause of inflation, they generally agree that certain factors are responsible for it.

• Demand Pull Inflation – As the name suggests, this happens when demand exceeds supply. There is an increase in demand for products and services and due to this increased demand, prices go up. The phenomenon is usually observed in economies that are experiencing rapid growth
• Cost Push Inflation – This comes from the supply side. When a company’s cost of production increases, it compensates by increasing the prices of its goods and services, so that it can maintain its profit margin. Production costs can go up because the cost of the raw materials goes up or because of taxation or because of increased wages to its workers.
• Monetary Inflation – As per this theory, when money is oversupplied in an economy, inflation occurs. Since money is also ruled by supply and demand, too much money circulating makes its value go down and therefore, prices go up.

Essay on Problems of Rising Prices – Essay 300 words

As a developing country with the second largest population in the world, India faces quite a few challenges. One of these is rising prices and it is by far the most immediate problem. Because a large part of the Indian population lives on or below the poverty line, this issue impacts them severely. In addition, the middle class is also facing greater problems because of prices rising.

What Rising Prices Do

It has commonly been held that price rises are a normal part of a growing economy. This is true to some extent. However, recent years have seen exponential hikes in prices – hikes that are affecting those Indians who were already at subsistence level. The number of people living below the poverty line is actually increasing instead of decreasing.

Another segment of society that is affected by rising prices is the middle class. A robust part of society, the middle class, now finds itself struggling to make ends meet. These are people who earn a fixed income; they are the salaried class. Unfortunately, their salaries are unable to keep up with the constant increases in prices of necessary goods and commodities. As a result, the gap between the haves and the have-nots increases day by day.

Whenever such a situation continues for some time, unrest is inevitable. As wage earners find themselves facing the problems price hikes bring, they start agitating against their employers. This, in turn, brings a halt to productivity, causing shortage of goods and commensurate rise in prices. The whole thing becomes a vicious circle.

Essay on Rising Prices/Price Hike of Essential Commodities 400 words

In India, certain commodities have been classified as essential commodities as per the Essential Commodities Act 1955. These commodities include but aren’t limited to oil cakes, cattle fodder, components of automobiles, coal, certain drugs, woollen and cotton textiles, edible oils, steel and iron, products manufactured from steel and iron, petroleum and its products, paper, food crops and raw cotton. These commodities are essential to both the population of the country and to its economy. Therefore, any shortfall can result in high prices quickly.

Rising Prices of Essential Commodities

Over the past few years, these essential commodities have seen price rises ranging from 72 percent to 158 percent. The hikes in price are caused by both the demand and the supply of these commodities.

India’s increasing population is one of the main factors in price hikes. The demand exceeds the supply by a huge margin and the demand keeps growing as the population increases. In addition, changing habits have increased the demand for certain commodities well beyond what can be supplied.

From a supply perspective, factors such as uncertain weather, lack of cold storage and lack of warehousing facilities play a huge role in pushing prices up. A very high percentage of vegetables and fruits wasted because of inadequate cold storage facilities, affecting supply and raising prices.

Commodities such as petroleum, which imported to a large extent, are subject to international prices. Therefore, the moment there is global shortage or global price hike, these commodities become dearer.

Artificial gaps in supply are created by unscrupulous operators such as black marketers, hoarders, and traditional traders. By holding back these commodities, they are able to create a bigger demand and thus, an increase in prices.

Since these commodities are essential, price hikes have both economic and political consequences. The price rises become part of the political agenda for opposition parties to attack the government. By doing this, they attempt to show solidarity with the common man. However, there is no doubt in the fact that it is the common man who is the one most deeply affected at the end of the day. Sweeping reforms needed to control hoarders and reform agriculture in a way that price hikes for essential commodities don’t hit the common man where it hurts most – his wallet.

Essay on Rising Prices/Price Hike Causes and its Effects 500 words

There is no denying the fact that the Indian economy is one of the world’s largest economies. It has recently superseded China as the fastest growing large economy and ranks third in Gross Domestic Product in terms of Purchasing Power Parity. While these statistics are good, the Indian economy is also facing many challenges, one of which is rising prices.

Causes of Rising Prices

The factors that cause prices to rise are twofold – internal and external.

Global inflation is an external cause of price rise. When the prices of certain goods abroad are higher, importing these goods costs more. This increased cost passed on to the consumer directly and indirectly. For example, when oil prices rise globally, it becomes more expensive to import oil. In turn, this affects the prices of oil products such as petroleum and diesel in our country. The consumer then has to pay higher prices to get these products. Since these are products that used in transportation, costs of goods transported also increase. Therefore, goods such as foodstuffs and other necessities also become more expensive.

These are factors that caused by the economic and political situations inside the country. There are various internal factors that cause a hike in prices. Some of them are:

• Rapid Population Growth

An increasing population demands an increasing amount of goods. Demand increases and supply can’t keep up, thus driving the prices higher.

• Income Increase

As the purchasing power of the population increases, the demand for goods and services also increases. Again, the demand outstrips the supply and prices go up.

• Insufficient Agricultural Output

Thanks to a growing population and increase in purchasing power, the demand for agricultural goods has increased. However, because this sector has neglected to a significant degree, it cannot keep up with the demand. A drought or a flood is enough to disrupt supply and increase prices.

• Insufficient Industrial Production

The industrial sector has fared better at the hands of the government. However, industrial growth rate has only increased in the last 30 or so years. Therefore, certain industrial products such as basic consumer products and agricultural and industrial inputs have not been able to keep up with the demand which has resulted in a price hike.

Essay on Rising Prices/Price Hike Effects

An increase in prices inevitably affects the lives of the general population. When the prices of basic goods such as food increase, people who are living just above the subsistence level slip down below the poverty line. It also affects the pockets of the population that has fixed incomes. Prices go up but their wages remain the same and, therefore, they either forced to spend more or give up certain goods entirely. The rich not really affected by the price rise and therefore, the gap between the rich and the poor widens almost daily.

Essay on Rising Prices FAQs

What is the rising of prices.

Rising of prices, often referred to as inflation, is when the general level of prices for goods and services in an economy increases over a period, resulting in a decrease in the purchasing power of currency.

What are the problems of rising prices?

Problems associated with rising prices include reduced purchasing power for consumers, increased production costs for businesses, and potential economic instability.

What is the reason for the price increase?

Price increases can be caused by factors such as increased demand, supply shortages, changes in production costs, or monetary policies affecting the money supply.

Why prices are rising in India?

Prices can rise in India due to a variety of factors, including increased demand for goods and services, supply chain disruptions, rising production costs, and fluctuations in global commodity prices.

What is the problem of price rise in India?

The problem of price rise in India can lead to reduced affordability of essential goods and services, potentially impacting the standard of living for many people.

What are the effects of price rise in India?

The effects of price rise in India can include decreased purchasing power, reduced savings, and challenges in maintaining a stable economy and addressing poverty and inequality.

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Prices Rise When the Government Prints too Much Money Report (Assessment)

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Introduction

Economic costs of inflation, status of inflation.

Inflation is an increase in the prices paid for commodities within an economy at the expense of a constant real income. It is closely linked to increased money supply.

The increase in the liquidity of an economy is intended to stimulate economic activities such as increase demand, productivity and reduce the level of unemployment. However, the actions result to increased inflation with more money chasing few goods. This study seeks to establish the relationship between product prices and the supply of money in an economy. Therefore, it seeks to verify the statement that prices increases when the government prints too much money.

Many authors including Dywer & Hafer (1999) have noted Price increase as a factor that represents inflation. It may also be defined as the continuous loss of value of money. The increase in the prices should be continuous, in addition, a given commodity price should increase relative to other commodity prices.

According to Makinen (2003, p. 3), inflation should continue for some time such as a week, a month or one year. Many countries have experienced drastic inflations in during different periods in history. One of the significant nations is the U.S that has experienced high inflation over time especially since World War II.

Inflation can be caused by many factors with the most significant being the supply of money. For instance, the level of inflation in the U.S is closely linked to the increase in the money supply in the economy. Makinen (2003, p. 3) notes that an increase in the supply of money in an economy relative to the output in the economy could lead to inflationary pressure on prices of goods and services in the economy.

It is believed that an increase in the supply of liquidity in the country could lead to increased amount of money used to purchase few available goods. Increased money supply therefore leads to increased demand for goods and services yet the amount of goods remains literally the same. Due to the law of demand and supply, equilibrium would be attained when the prices of goods and services increase hence inflation (Dywer & Hafer, 1999, p. 4).

The Federal Reserve while in other countries, the central banks such as the European central bank (ECB), controls the level of liquidity in the U.S economy. As economists blame the Federal Reserve and central bank for inflation, the two provide different reasons for increased inflation in an economy. it is believed that inflation in the U.S is caused by other factors other than money supply such as activities that have a negative impact and upward pressure on prices.

For instance, any attempt by labor unions to obtain increased wages for employees in the economy could increase operating costs of firms in the country leading to reduced productivity. OPEC activities could also affect negatively the operations of firms in an economy leading to reduced productivity.

For instance, if OPEC pursues monopolistic oil pricing strategies, an increase in the price of oil could affect operating expenses of firms negatively hence reducing productivity. Other activities that affect productivity negatively include fluctuations in the exchange rates such as a decline in the USD and crop failure.

According to Dywer & Hafer (1999, p. 5), a decline in output results to an increase in unemployment. In order to stimulate the economy and reduce the levels of unemployment, the Federal reserve and the central bank pursues expansionary monetary policies that ensures that it pumps money into the economy in order to increase demand and output. This increases inflations because the prices of commodities would increase following increased demand.

These theories are mainly applied in the U.S and UK economies. For instance, the initial two causes of inflations as stated above are believed to be the causes of inflation in the U.S especially after the II world war in which the Federal Reserve used to pump money in the economy to stimulate production and reduce unemployment while resulting to inflation.

However, the last reason as explained above is entrenched among British economists who hold that inflation is not only caused by increased liquidity. They attributed the inflation affecting UK over time to the money substitutes that cause inflation in the guise of credit.

Economic costs of inflation are discussed among economists as unemployment that leads to other negative economic effects. According to Makinen (2003, p. 9), recounting the costs of inflation could be confusing because of the confusion over the cost of the entire economy versus the cost to a specific individual. In addition, some inflationary costs are incurred due to unanticipated inflation while others are incurred due to anticipated inflation.

Makinen (2003, p. 10) notes that in fully indexed economies, contractions in the economy are adjusted in the price level of commodities in the economy including prices of bonds, wages and salaries. In such economies, a floating exchange rate leaves exchange rates to float freely.

Holding money during inflation is costly because the value of money is reduced. Therefore, transactionary cost of holding money is high. Firms experience rising operating costs while individuals experience uncertainty about the future. In spite of this inflationary cost, it has been reduced in the U.S today.

The other cost of inflation is the menu cost that involves increased time as resources used are involved in frequent price adjustment during inflation that leaves firms losing not only profit, but also useful time.

In partially indexed economies, inflation may be either anticipated or unanticipated. In spite of the anticipation of inflation, its costs are inevitable. For instance, the U.S is not fully indexed an inflation has many costs. For instance, anticipated inflation in the U.S could lead to drastic negative effects on the economy.

Tax is usually deducted from the nominal income of employees. The interaction between taxation and inflation results to reduced real income causing low motivation for work, reduced savings and investments in the economy. Lack of indices in an economy could leave inflation to have its drastic effects.

For instance, taxation in a progressive tax regime could the real income of employees hence acting as a disincentive for work. The U.S reduced this inflationary cost in the 1980s by formulation and enacting of a legislation that reduced the levels of progressivity of the income tax of the federal government (Makinen, 2003, p. 6).

In summary, inflation causes reduced real income in an economy. Participants in a market economy undertake the functioning of the price system to be for granted. However, inflation can affect the price system causing its malfunctioning and negatively affecting the allocation of resources in the economy. The measurement of inflation is conducted using several measures. However, the most common is the use of the consumer price index (Milton & Schwartz, 1982, p. 1869).

Inflation has occurred over time hence affecting many countries worldwide. In spite of the many effects that it has had on the economy, this study would examine only two countries, the U.S and the UK. The U.S began realizing high inflation since the Second World War. In the 1970s, the country experienced significant rates of inflation in which the consumer price index rose at an annual rate of 7.5%.

In spite of the increase in inflation, the money supply M1 increased at an annual rate of 3%. Te increase in the inflation was caused by other factors other than the rise in the money supply in the U.S economy. This was attributed the increase in the oil prices by OPEC that led to a sharp increase in material inputs used in manufacture of various products.

With an increase in the consumer prices, the cost-push inflation had to be supported by an increase in the money supply in the economy. Therefore, money supply is related to cost push inflation if the inflation is caused by factors other than money supply.

The UK experienced more inflation in the 20 th century compared to the U.S. the inflation in the UK was associated with increase in the money supply rather than other factors in the economy. Similar to the levels of inflation in the U.S, inflation in the UK was closely related to the changes in the money supply relative to the real income (Dywer & Hafer, 1999, p. 6).

During the great depression, the decrease in value of money was attributed increased price levels in the economy. According to Milton & Schwartz (1982) the high level of inflation realize in the UK since the Second World War is attributed to the increase in the money supply to the economy relative to the real income in the UK economy.

Therefore, it is evident that there is a significant relationship between the rise in the level of inflation in an economy and the increase in the supply of money in the economy (Dywer & Hafer, 1999, p. 7).

The above discussion has been about the relationship between the supply of money in an economy and the level of inflation. It is evident that inflation is recorded whenever the prices of commodities in an economy increase relative to the real income of consumers. It is mainly captured using the consumer price index.

It is evident that there is a link between the increase in inflation and the level of money supply. As indicated in the U.S and the UK, an increase in the money supply in the course of the 20 th century is reported as the reason behind the rising inflation during the same period especially after the Second World War.

Following these revelations, this study concludes by agreeing with the statement that prices rises when the government prints too much money through the Federal Reserve or the Central Bank.

Dywer, G. & Hafer, R. (1999) Are Money growth and inflation still Related. Federal Reserve Bank of Atlanta. Economic Review . Web.

Makinen, G. (2003) Inflation: Causes, Costs, and Current Status. CRS Report. Web.

Milton, F. & Schwartz, A. (1982) Monetary Trends in the United States and the United Kingdom: Their Relation to Income, Prices, and Interest Rates, Chicago: University of Chicago Press. 1867–1975.

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IvyPanda. (2019, March 21). Prices Rise When the Government Prints too Much Money. https://ivypanda.com/essays/prices-rise-when-the-government-prints-too-much-money/

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Essay on Inflation: Types, Causes and Effects

Essay on Inflation!

Essay on the Meaning of Inflation:

Inflation and unemployment are the two most talked-about words in the contemporary society. These two are the big problems that plague all the economies. Almost everyone is sure that he knows what inflation exactly is, but it remains a source of great deal of confusion because it is difficult to define it unambiguously.

Inflation is often defined in terms of its supposed causes. Inflation exists when money supply exceeds available goods and services. Or inflation is attributed to budget deficit financing. A deficit budget may be financed by additional money creation. But the situation of monetary expansion or budget deficit may not cause price level to rise. Hence the difficulty of defining ‘inflation’ .

Inflation may be defined as ‘a sustained upward trend in the general level of prices’ and not the price of only one or two goods. G. Ackley defined inflation as ‘a persistent and appreciable rise in the general level or average of prices’ . In other words, inflation is a state of rising price level, but not rise in the price level. It is not high prices but rising prices that constitute inflation.

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It is an increase in the overall price level. A small rise in prices or a sudden rise in prices is not inflation since these may reflect the short term workings of the market. It is to be pointed out here that inflation is a state of disequilibrium when there occurs a sustained rise in price level.

It is inflation if the prices of most goods go up. However, it is difficult to detect whether there is an upward trend in prices and whether this trend is sustained. That is why inflation is difficult to define in an unambiguous sense.

Let’s measure inflation rate. Suppose, in December 2007, the consumer price index was 193.6 and, in December 2008 it was 223.8. Thus the inflation rate during the last one year was 223.8 – 193.6/193.6 × 100 = 15.6%.

As inflation is a state of rising prices, deflation may be defined as a state of falling prices but not fall in prices. Deflation is, thus, the opposite of inflation, i.e., rise in the value or purchasing power of money. Disinflation is a slowing down of the rate of inflation.

Essay on the Types of Inflation :

As the nature of inflation is not uniform in an economy for all the time, it is wise to distinguish between different types of inflation. Such analysis is useful to study the distributional and other effects of inflation as well as to recommend anti-inflationary policies.

Inflation may be caused by a variety of factors. Its intensity or pace may be different at different times. It may also be classified in accordance with the reactions of the government toward inflation.

Thus, one may observe different types of inflation in the contemporary society:

(a) According to Causes:

i. Currency Inflation:

This type of inflation is caused by the printing of currency notes.

ii. Credit Inflation:

Being profit-making institutions, commercial banks sanction more loans and advances to the public than what the economy needs. Such credit expansion leads to a rise in price level.

iii. Deficit-Induced Inflation:

The budget of the government reflects a deficit when expenditure exceeds revenue. To meet this gap, the government may ask the central bank to print additional money. Since pumping of additional money is required to meet the budget deficit, any price rise may be called deficit-induced inflation.

iv. Demand-Pull Inflation:

An increase in aggregate demand over the available output leads to a rise in the price level. Such inflation is called demand-pull inflation (henceforth DPI). But why does aggregate demand rise? Classical economists attribute this rise in aggregate demand to money supply.

If the supply of money in an economy exceeds the available goods and services, DPI appears. It has been described by Coulborn as a situation of “too much money chasing too few goods” .

Note that, in this region, price level begins to rise. Ultimately, the economy reaches full employment situation, i.e., Range 3, where output does not rise but price level is pulled upward. This is demand-pull inflation. The essence of this type of inflation is “too much spending chasing too few goods.”

v. Cost-Push Inflation:

Inflation in an economy may arise from the overall increase in the cost of production. This type of inflation is known as cost-push inflation (henceforth CPI). Cost of production may rise due to increase in the price of raw materials, wages, etc. Often trade unions are blamed for wage rise since wage rate is not market-determined. Higher wage means higher cost of production.

Prices of commodities are thereby increased. A wage-price spiral comes into operation. But, at the same time, firms are to be blamed also for the price rise since they simply raise prices to expand their profit margins. Thus we have two important variants of CPI: wage-push inflation and profit-push inflation. Anyway, CPI stems from the leftward shift of the aggregate supply curve.

The price level thus determined is OP 1 . As aggregate demand curve shifts to AD 2 , price level rises to OP 2 . Thus, an increase in aggregate demand at the full employment stage leads to an increase in price level only, rather than the level of output. However, how much price level will rise following an increase in aggregate demand depends on the slope of the AS curve.

Causes of Demand-Pull Inflation :

DPI originates in the monetary sector. Monetarists’ argument that “only money matters” is based on the assumption that at or near full employment, excessive money supply will increase aggregate demand and will thus cause inflation.

An increase in nominal money supply shifts aggregate demand curve rightward. This enables people to hold excess cash balances. Spending of excess cash balances by them causes price level to rise. Price level will continue to rise until aggregate demand equals aggregate supply.

Keynesians argue that inflation originates in the non-monetary sector or the real sector. Aggregate demand may rise if there is an increase in consumption expenditure following a tax cut. There may be an autonomous increase in business investment or government expenditure. Governmental expenditure is inflationary if the needed money is procured by the government by printing additional money.

In brief, an increase in aggregate demand i.e., increase in (C + I + G + X – M) causes price level to rise. However, aggregate demand may rise following an increase in money supply generated by the printing of additional money (classical argument) which drives prices upward. Thus, money plays a vital role. That is why Milton Friedman believes that inflation is always and everywhere a monetary phenomenon.

There are other reasons that may push aggregate demand and, hence, price level upwards. For instance, growth of population stimulates aggregate demand. Higher export earnings increase the purchasing power of the exporting countries.

Additional purchasing power means additional aggregate demand. Purchasing power and, hence, aggregate demand, may also go up if government repays public debt. Again, there is a tendency on the part of the holders of black money to spend on conspicuous consumption goods. Such tendency fuels inflationary fire. Thus, DPI is caused by a variety of factors.

Cost-Push Inflation Theory :

In addition to aggregate demand, aggregate supply also generates inflationary process. As inflation is caused by a leftward shift of the aggregate supply, we call it CPI. CPI is usually associated with the non-monetary factors. CPI arises due to the increase in cost of production. Cost of production may rise due to a rise in the cost of raw materials or increase in wages.

Such increases in costs are passed on to consumers by firms by raising the prices of the products. Rising wages lead to rising costs. Rising costs lead to rising prices. And rising prices, again, prompt trade unions to demand higher wages. Thus, an inflationary wage-price spiral starts.

This causes aggregate supply curve to shift leftward. This can be demonstrated graphically (Fig. 11.4) where AS 1 is the initial aggregate supply curve. Below the full employment stage this AS curve is positive sloping and at full employment stage it becomes perfectly inelastic. Intersection point (E 1 ) of AD 1 and AS 1 curves determines the price level.

Now, there is a leftward shift of aggregate supply curve to AS 2 . With no change in aggregate demand, this causes price level to rise to OP 2 and output to fall to OY 2 .

With the reduction in output, employment in the economy declines or unemployment rises. Further shift in the AS curve to AS 2 results in higher price level (OP 3 ) and a lower volume of aggregate output (OY 3 ). Thus, CPI may arise even below the full employment (Y f ) stage.

Causes of CPI :

It is the cost factors that pull the prices upward. One of the important causes of price rise is the rise in price of raw materials. For instance, by an administrative order the government may hike the price of petrol or diesel or freight rate. Firms buy these inputs now at a higher price. This leads to an upward pressure on cost of production.

Not only this, CPI is often imported from outside the economy. Increase in the price of petrol by OPEC compels the government to increase the price of petrol and diesel. These two important raw materials are needed by every sector, especially the transport sector. As a result, transport costs go up resulting in higher general price level.

Again, CPI may be induced by wage-push inflation or profit-push inflation. Trade unions demand higher money wages as a compensation against inflationary price rise. If increase in money wages exceeds labour productivity, aggregate supply will shift upward and leftward. Firms often exercise power by pushing up prices independently of consumer demand to expand their profit margins.

Fiscal policy changes, such as an increase in tax rates leads to an upward pressure in cost of production. For instance, an overall increase in excise tax of mass consumption goods is definitely inflationary. That is why government is then accused of causing inflation.

Finally, production setbacks may result in decreases in output. Natural disaster, exhaustion of natural resources, work stoppages, electric power cuts, etc., may cause aggregate output to decline.

In the midst of this output reduction, artificial scarcity of any goods by traders and hoarders just simply ignite the situation.

Inefficiency, corruption, mismanagement of the economy may also be the other reasons. Thus, inflation is caused by the interplay of various factors. A particular factor cannot be held responsible for inflationary price rise.

Essay on the Effects of Inflation :

People’s desires are inconsistent. When they act as buyers they want prices of goods and services to remain stable but as sellers they expect the prices of goods and services should go up. Such a happy outcome may arise for some individuals; “but, when this happens, others will be getting the worst of both worlds.” Since inflation reduces purchasing power it is bad.

The old people are in the habit of recalling the days when the price of say, meat per kilogram cost just 10 rupees. Today it is Rs. 250 per kilogram. This is true for all other commodities. When they enjoyed a better living standard. Imagine today, how worse we are! But meanwhile, wages and salaries of people have risen to a great height, compared to the ‘good old days’. This goes unusually untold.

When price level goes up, there is both a gainer and a loser. To evaluate the consequence of inflation, one must identify the nature of inflation which may be anticipated and unanticipated. If inflation is anticipated, people can adjust with the new situation and costs of inflation to the society will be smaller.

In reality, people cannot predict accurately future events or people often make mistakes in predicting the course of inflation. In other words, inflation may be unanticipated when people fail to adjust completely. This creates various problems.

One can study the effects of unanticipated inflation under two broad headings:

(i) Effect on distribution of income and wealth

(ii) Effect on economic growth.

(a) Effects of Inflation on Income and Wealth Distribution :

During inflation, usually people experience rise in incomes. But some people gain during inflation at the expense of others. Some individuals gain because their money incomes rise more rapidly than the prices and some lose because prices rise more rapidly than their incomes during inflation. Thus, it redistributes income and wealth.

Though no conclusive evidence can be cited, it can be asserted that following categories of people are affected by inflation differently:

i. Creditors and Debtors:

Borrowers gain and lenders lose during inflation because debts are fixed in rupee terms. When debts are repaid their real value declines by the price level increase and, hence, creditors lose. An individual may be interested in buying a house by taking a loan of Rs. 7 lakh from an institution for 7 years.

The borrower now welcomes inflation since he will have to pay less in real terms than when it was borrowed. Lender, in the process, loses since the rate of interest payable remains unaltered as per agreement. Because of inflation, the borrower is given ‘dear’ rupees, but pays back ‘cheap’ rupees.

However, if in an inflation-ridden economy creditors chronically loose, it is wise not to advance loans or to shut down business. Never does it happen. Rather, the loan- giving institution makes adequate safeguard against the erosion of real value.

ii. Bond and Debenture-Holders:

In an economy, there are some people who live on interest income—they suffer most.

Bondholders earn fixed interest income:

These people suffer a reduction in real income when prices rise. In other words, the value of one’s savings decline if the interest rate falls short of inflation rate. Similarly, beneficiaries from life insurance programmes are also hit badly by inflation since real value of savings deteriorate.

iii. Investors:

People who put their money in shares during inflation are expected to gain since the possibility of earning business profit brightens. Higher profit induces owners of firms to distribute profit among investors or shareholders.

iv. Salaried People and Wage-Earners:

Anyone earning a fixed income is damaged by inflation. Sometimes, unionized worker succeeds in raising wage rates of white-collar workers as a compensation against price rise. But wage rate changes with a long time lag. In other words, wage rate increases always lag behind price increases.

Naturally, inflation results in a reduction in real purchasing power of fixed income earners. On the other hand, people earning flexible incomes may gain during inflation. The nominal incomes of such people outstrip the general price rise. As a result, real incomes of this income group increase.

v. Profit-Earners, Speculators and Black Marketeers:

It is argued that profit-earners gain from inflation. Profit tends to rise during inflation. Seeing inflation, businessmen raise the prices of their products. This results in a bigger profit. Profit margin, however, may not be high when the rate of inflation climbs to a high level.

However, speculators dealing in business in essential commodities usually stand to gain by inflation. Black marketeers are also benefited by inflation.

Thus, there occurs a redistribution of income and wealth. It is said that rich becomes richer and poor becomes poorer during inflation. However, no such hard and fast generalizations can be made. It is clear that someone wins and someone loses from inflation.

These effects of inflation may persist if inflation is unanticipated. However, the redistributive burdens of inflation on income and wealth are most likely to be minimal if inflation is anticipated by the people.

With anticipated inflation, people can build up their strategies to cope with inflation. If the annual rate of inflation in an economy is anticipated correctly people will try to protect them against losses resulting from inflation.

Workers will demand 10 p.c. wage increase if inflation is expected to rise by 10 p.c. Similarly, a percentage of inflation premium will be demanded by creditors from debtors. Business firms will also fix prices of their products in accordance with the anticipated price rise. Now if the entire society “learns to live with inflation” , the redistributive effect of inflation will be minimal.

However, it is difficult to anticipate properly every episode of inflation. Further, even if it is anticipated it cannot be perfect. In addition, adjustment with the new expected inflationary conditions may not be possible for all categories of people. Thus, adverse redistributive effects are likely to occur.

Finally, anticipated inflation may also be costly to the society. If people’s expectation regarding future price rise become stronger they will hold less liquid money. Mere holding of cash balances during inflation is unwise since its real value declines. That is why people use their money balances in buying real estate, gold, jewellery, etc.

Such investment is referred to as unproductive investment. Thus, during inflation of anticipated variety, there occurs a diversion of resources from priority to non-priority or unproductive sectors.

b. Effect on Production and Economic Growth :

Inflation may or may not result in higher output. Below the full employment stage, inflation has a favourable effect on production. In general, profit is a rising function of the price level. An inflationary situation gives an incentive to businessmen to raise prices of their products so as to earn higher doses of profit.

Rising price and rising profit encourage firms to make larger investments. As a result, the multiplier effect of investment will come into operation resulting in higher national output. However, such a favourable effect of inflation will be temporary if wages and production costs rise very rapidly.

Further, inflationary situation may be associated with the fall in output, particularly if inflation is of the cost-push variety. Thus, there is no strict relationship between prices and output. An increase in aggregate demand will increase both prices and output, but a supply shock will raise prices and lower output.

Inflation may also lower down further production levels. It is commonly assumed that if inflationary tendencies nurtured by experienced inflation persist in future, people will now save less and consume more. Rising saving propensities will result in lower further outputs.

One may also argue that inflation creates an air of uncertainty in the minds of business community, particularly when the rate of inflation fluctuates. In the midst of rising inflationary trend, firms cannot accurately estimate their costs and revenues. Under the circumstance, business firms may be deterred in investing. This will adversely affect the growth performance of the economy.

However, slight dose of inflation is necessary for economic growth. Mild inflation has an encouraging effect on national output. But it is difficult to make the price rise of a creeping variety. High rate of inflation acts as a disincentive to long run economic growth. The way the hyperinflation affects economic growth is summed up here.

We know that hyperinflation discourages savings. A fall in savings means a lower rate of capital formation. A low rate of capital formation hinders economic growth. Further, during excessive price rise, there occurs an increase in unproductive investment in real estate, gold, jewellery, etc.

Above all, speculative businesses flourish during inflation resulting in artificial scarcities and, hence, further rise in prices. Again, following hyperinflation, export earnings decline resulting in a wide imbalance in the balance of payments account.

Often, galloping inflation results in a ‘flight’ of capital to foreign countries since people lose confidence and faith over the monetary arrangements of the country, thereby resulting in a scarcity of resources. Finally, real value of tax revenue also declines under the impact of hyperinflation. Government then experiences a shortfall in investible resources.

Thus, economists and policy makers are unanimous regarding the dangers of high price rise. But the consequence of hyperinflation is disastrous. In the past, some of the world economies (e.g., Germany after the First World War (1914-1918), Latin American countries in the 1980s) had been greatly ravaged by hyperinflation.

The German Inflation of 1920s was also Catastrophic:

During 1922, the German price level went up 5,470 per cent, in 1923, the situation worsened; the German price level rose 1,300,000,000 times. By October of 1923, the postage of the lightest letter sent from Germany to the United States was 200,000 marks.

Butter cost 1.5 million marks per pound, meat 2 million marks, a loaf of bread 200,000 marks, and an egg 60,000 marks Prices increased so rapidly that waiters changed the prices on the menu several times during the course of a lunch!! Sometimes, customers had to pay double the price listed on the menu when they observed it first!!!

During October 2008, Zimbabwe, under the President-ship of Robert G. Mugabe, experienced 231,000,000 p.c. (2.31 million p.c.) as against 1.2 million p.c. price rise in September 2008—a record after 1923. It is an unbelievable rate. In May 2008, the cost of price of a toilet paper itself and not the costs of the roll of the toilet paper came to 417 Zimbabwean dollars.

Anyway, people are harassed ultimately by the high rate of inflation. That is why it is said that ‘inflation is our public enemy number one’. Rising inflation rate is a sign of failure on the part of the government.

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Essay Rising Prices: A Problem that Needs to be Addressed and Fixed

Prices of food articles are increasing day by day and there is a wide gap between wholesale prices and retail prices. The common man is suffering. The government is trying to control the prices. Write an article in 100-120 words on ` Rising Prices ‘ and give suggestions on how to control them. You may use the hints given below:

Hints : (40 percent below the poverty line, incomes of lower middle class very low, prices of food articles risen high, difficult to make both ends meet; steps were taken by the government; causes of rising prices; your suggestions).                                                                                                          

Ans.                                                                    Rising Prices

  What we can find as a major roadblock for our country’s economic progress are the rising prices. Almost every consumer-oriented commodity like food articles is now high in cost. The essential goods that we need for our day to day survival are increasing in price every week/ month. Milk, fruits vegetables, groceries and grains which we need every day are so high in price that there is no question of buying or even thinking of buying more of the goods. There is a wide gap in the prices between the wholesale and the retail market. Indeed the fact is that neither the producer nor the consumer benefits, in the end, thanks to the middlemen whose f business is thriving. In such a condition, we find it difficult to make both ends meet. The income of the lower middle class is very low to meet the minimum expenses of the family. If this is so, then the condition of the poor is still pathetic. With 40% of poverty in our country below the poverty line, we can say that almost half the population remains hungry for the most part of the day. In spite of government subsidies to farmers. Poverty still prevails and the prices of food articles remain high. The government should take a middle course wherein both produce and the consumer benefit, while the middlemen should not be the sole beneficiaries.

Article on Rising Prices in 100 Words

Rising prices is one of the most common problems that people face today. It is becoming difficult for people to manage their daily expenses within their monthly incomes. The main reason behind this problem is the inflation which has been constantly increasing over the past few years. Prices of goods and services are increasing at a faster rate than the incomes of people. There are various reasons behind this inflationary trend in India. One of the major reasons is the increase in crude oil prices. Due to increase in crude oil prices, the transportation cost has also increased which has led to an overall increase in the prices of goods and services. Another reason for inflation is the ever-increasing population of India. 

Article on Rising Prices in 150 Words

Rising prices are one of the most common economic problems people face today. The cost of living is constantly increasing, but wages remain stagnant. This means that people have less and less money to spend on essentials like food and shelter. Rising prices are a major cause of poverty and inequality. When the cost of living goes up, but incomes don’t, it hits the poorest people the hardest. This can lead to a spiral of debt and despair, as people are forced to cut back on basics like food and healthcare. There are several reasons why prices keep rising. One is simply that the demand for goods and services keeps increasing, while the supply remains static. This puts upward pressure on prices. Another reason is that businesses may be trying to increase their profits by charging more for their products or services. Governments can take steps to help reduce the impact of rising prices on people’s lives. 

Article on Rising Prices in 500 + Words

Introduction

Prices are on the rise, but why? This essay will explore the underlying causes of rising prices and offer some solutions to this problem. We are all Feeling It: The Impact of Rising Prices Rising prices is a topic that impacts us all. Whether we are buying gas for our car, groceries for our household, or clothes for our wardrobe, we can all feel the pinch when prices go up. But why do prices rise? Is it just greedy businesses trying to make more money? While business do play a role in setting prices, there are several underlying factors that contribute to rising prices. In this essay, we will explore some of these causes and offer some potential solutions to the problem of rising prices.

What are the causes of rising prices?

1. Increasing demand: As the world population continues to grow, the demand for goods and services increases, leading to higher prices.

2. Limited supply: When there is only a limited supply of a good or service, prices will rise to ration that scarce resource.

3. Inflation : Rising prices are often caused by inflation, which is when the money supply decreases in value, leading to more expensive goods and services.

4. Economic growth: When an economy is growing rapidly, businesses often raise prices to keep up with the increased demand for their products and services.

5. Exchange rates: A country’s currency can become valuable relative to other currencies, leading to higher or lower prices for goods and services purchased in that currency.

6. Energy costs: Rising energy costs can lead to higher prices for goods and services as businesses pass on these increased costs to consumers.

7. Transportation costs: Higher transportation costs can also lead to higher prices as businesses pass on these increased costs to consumers.

8. Raw materials costs: If the cost of raw materials increases, this will often be passed on to consumers in the form of higher prices.

9. Tax changes: Changes in tax rates can impact the price of goods and services, as businesses pass on the increased taxes to consumers in the form of higher prices.

10. Government subsidies: The withdrawal of government subsidies can lead to higher prices

The Effect of Rising Prices on People’s Lives

Rising prices have several effects on people’s lives.  

Here are 7 of the most significant:

1. Increased cost of living: When prices go up, the cost of living also rises. This puts pressure on families, particularly those on low or fixed incomes, as they struggle to make ends meet.

2. Inflation: Rising prices can lead to inflation, which in turn erodes the value of people’s savings and earnings. This can be a particular problem for retirees and other people on fixed incomes.

3. Reduced purchasing power: As prices increase, people’s purchasing power is reduced. This means that they can’t buy as much with their money, which can impact their standard of living.

4. Wages don’t keep up: In many cases, wages don’t rise at the same rate as prices. This means that people’s earnings don’t keep pace with the cost of living, putting them under financial pressure.

5. Job losses: When industries are hit by rising prices, it can lead to job losses as companies look to cut costs. This can have a devastating impact on people’s lives, leaving them unemployed and struggling to make ends meet .

6. Business closures: Rising costs can also force businesses to close down, leading to even more job losses and further economic hardship for those affected.

7. Social unrest: When people are struggling to make ends meet, it can lead to social unrest.  

The measures taken to control rising prices

1. The government has imposed a ceiling on the prices of essential commodities. 2. The government has also decided to release additional supplies of essential commodities to the market. 3. The government has also banned the hoarding of essential commodities. 4. The government has also fixed the wholesale and retail prices of essential commodities. 5. The government has also introduced a system of rationing for essential commodities. 6. The government has also taken steps to improve the supply situation of essential commodities. 7. The government has also taken measures to control the speculation in essential commodities. 8. The government has also taken measures to check the black marketing of essential commodities. 9. The government has also launched a campaign to create awareness among people about the need to conserve essential commodities. 10. The government has also taken steps to encourage production of essential commodities.

People Also Ask : 

1.What are the reasons of price rise? Ans : There are multiple reasons for the price rise. One reason is that the demand for certain products has increased. For example, the demand for smartphones has increased, which has led to a rise in the prices of smartphones. Another reason is that the costs of producing a product have gone up. For example, the cost of cotton has gone up, which has led to a rise in the prices of shirts.

2. What are the effects of rising prices? Ans : Rising prices have a number of effects on society as a whole. Firstly, they can cause people to lose out financially, as they are unable to afford the increased prices. Secondly, they can lead to people becoming less productive as they have to economize on their spending. Finally, they can lead to social tensions as people become angry about the increase in prices.

3. What is rise in price? Ans : Rise in price is an increase in the cost of goods and services. This may be due to factors such as inflation, a shortage of goods, or changes in taxation.

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Price Rise in India Essay With PDF Notes

The price rise in India is simply referred to as inflation in economic terms. The price rise in India essay delves into the problems, briefing all the terms associated with price rises, their effects, and the possible solutions to price rises in India.

The price rise in India essay defines the situation as simply the increases in the price of goods and services over a period of time. People from middle-class families who majorly depend on fixed incomes can find this situation traumatic.

Table of Contents

Short essay on price rise in india.

One of the most important economic phenomena that heavily affects the daily lives of Indian citizens is price rises. The price rise is often known as inflation. Price rises reduce the purchasing capacity of the common citizen.

The rise in the price of goods and services Over time, the insufficient supply of goods has been the major reason for this economic imbalance. Price rise can also cost due to several other reasons, like global affairs, reducing the price of currency, import, export, cost of fossil fuels etc.

To combat this economic crisis, good administrative rules and regulations must be adopted. The monetary policy Should be strong. Every section of society has an equal Opportunity To purchase.

Price Rise in India Essay pdf Download

Price Rise in India Essay

Nowadays, price rises in India are a common phenomenon. It is a concerning phenomenon that directly or indirectly affects the daily life of every citizen. An economic phenomenon occurs when the price of goods and services increases over a certain period of time.

This phenomenon of price rises is also known as inflation in economic terms. Several causes can lead to the price of goods and services rising. One of the primary reasons for the price rise is the imbalance between supply and demand.

If demand for any goods increases in our population and supply decreases or remains constant, then this kind of situation is evident. When the cost of production increases, that also leads to a price rise. If the cost of production of any goods and services increases, businesses have to increase the price to maintain their profitability. Instead of all these global phenomena, like the depreciation of rupees, basic trade between countries and import-export also leads to price rises.

To fight this issue, the government plays a crucial role by implementing the right policies at the right time. The government also needs to ensure the MRP for essential goods. By controlling money-related problems like taxation, public spending, and interest rates, the RBI can implement good monetary policy along with the government.

Price rises, or inflation, can have a very significant impact on the economy as prices rise. reduces the purchasing power of consumers. People who rely on fixed incomes like pensions, fixed interest, or fixed-salary employees can find this time very difficult. to address the price rise in India.

We need collaborative efforts from the government and central banks. By implementing the right policies, the government must promote sustainable growth. Keeping all global trade rights.

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Essay on Rising Prices Price Hike

Price rise or price hike are the terms used to denote rise in price of goods and services. The economic term for rising prices or price hike is “inflation”. Fluctuations in prices of goods and services are common in world economies; though, it directly affects the consumer. While a drop in prices is good news for middle and lower class consumers; an increase might cause financial constraints to them. A price hike in the items consumed daily in the households, affects the consumer more. Such items include, fruits, vegetables, oils, LPG Cylinders, etc. Every price hike on an individual item affects a specific set of consumers, like, a hike in fuel price; affect the transport industry more than private users.

Long and Short Essay on Rising Prices or Price Hike in English

We are providing below long and short essay on rising prices or price hike in English.

These essays have been written in simple and easy to remember language to let you use them whenever required.

The rising prices or price hike essay will give you an insight of reasons and effects of price hike on general masses.

You can use these essays in your school assignments and various other competitions or general debates on the topic of rising price or price hike.

Essay on Price Hike in India and Common Man – Essay 1 (200 words)

Introduction

Price hike is a common phenomenon and happens in most economies. It is a reality in India as well. However, this reality isn’t only because of the natural progress of economics but also because of governmental policies and taxation, all of which contribute to the price of goods and services that eventually reach the common man.

Price Hike and the Common Man

For the common man, a hike in prices is always a matter of some concern. He has to make constant readjustments to his monthly budget and even give up using certain products and services since he can no longer afford them. Add in the fact that salaries don’t increase at a commensurate rate and the ability of the common man to afford many things goes down significantly.

What is also a matter of concern is that when the price of certain items is hiked, prices of other essential goods and services also go up. For example, if the price of petrol or diesel is hiked, the common man has to adjust that in his budget. But this increase in prices also means increased prices for public transport and goods that are transported across the country using petrol or diesel fuelled transport. In other words,  because the price of petrol increases, the price of vegetables and grains may also increase.

For the common man a price hike in one particular commodity can affect his entire budget and cut into his savings. It is up to the government to control hikes in prices so that the situation doesn’t become unbearable for ordinary citizens.

Essay on Rising Prices Inflation – Essay 2 (250 words)

When the prices of goods and commodities increase over a period of time in a sustained manner, the phenomenon is called inflation. It is measured in terms of an annual percentage change in a price index, which is normally the consumer price index. In simple terms, inflation means that your purchasing power is reduced and a rupee doesn’t go as far as it used to. Therefore, when the value of money goes down and prices rise, you have inflation.

Causes of Rising Prices Inflation

While academics and economists haven’t agreed on one particular theory about the cause of inflation, they generally agree that certain factors are responsible for it.

• Demand Pull Inflation – As the name suggests, this happens when demand exceeds supply. There is an increase in demand for products and services and due to this increased demand, prices go up. The phenomenon is usually observed in economies that are experiencing rapid growth
• Cost Push Inflation – This comes from the supply side. When a company’s cost of production increases, it compensates by increasing the prices of its goods and services, so that it can maintain its profit margin. Production costs can go up because the cost of the raw materials goes up or because of taxation or because of increased wages to its workers.
• Monetary Inflation – As per this theory, when money is oversupplied in an economy, inflation occurs. Since money is also ruled by supply and demand, too much money circulating makes its value go down and therefore, prices go up.

People are directly impacted by inflation. What they fail to see, however, is that inflation is necessary to and sometimes beneficial for the economy. They should focus on demanding that wages rise as inflation does, so that their purchasing power isn’t affected negatively. Inflation by itself isn’t simply bad or good; the type of economy and people’s own circumstances determine whether it is one or the other.

Essay on Problems of Rising Prices – Essay 3 (300 words)

As a developing country with the second largest population in the world, India faces quite a few challenges. One of these is rising prices and it is by far the most immediate problem. Because a large part of the Indian population lives on or below the poverty line, this issue impacts them severely. In addition, the middle class is also facing greater problems because of prices rising.

What Rising Prices Do

It has commonly been held that price rises are a normal part of a growing economy. This is true to some extent. However, recent years have seen exponential hikes in prices – hikes that are affecting those Indians who were already at subsistence level. The number of people living below the poverty line is actually increasing instead of decreasing.

Another segment of society that is affected by rising prices is the middle class. A robust part of society, the middle class, now finds itself struggling to make ends meet. These are people who earn a fixed income; they are the salaried class. Unfortunately, their salaries are unable to keep up with the constant increases in prices of necessary goods and commodities. As a result, the gap between the haves and the have-nots increases day by day.

Whenever such a situation continues for some time, unrest is inevitable. As wage earners find themselves facing the problems price hikes bring, they start agitating against their employers. This, in turn, brings a halt to productivity, causing shortage of goods and commensurate rise in prices. The whole thing becomes a vicious circle.

While price hikes are inevitable in any economy, uncontrolled or badly controlled increases hit the population of a country hard and amplify the gap between the rich and the poor. They lower the general standard of living and cause mass unrest. In order to have a stable and prosperous society it is necessary for the powers that be to exercise some measure of control over price hikes.

Essay on Rising Prices of Essential Commodities – Essay 4 (400 words)

In India, certain commodities have been classified as essential commodities as per the Essential Commodities Act 1955. These commodities include but aren’t limited to oil cakes, cattle fodder, components of automobiles, coal, certain drugs, woollen and cotton textiles, edible oils, steel and iron, products manufactured from steel and iron, petroleum and its products, paper, food crops and raw cotton. These commodities are essential to both the population of the country and to its economy. Therefore, any shortfall can result in high prices quickly.

Rising Prices of Essential Commodities

Over the past few years, these essential commodities have seen price rises ranging from 72 percent to 158 percent. The hikes in price are caused by both the demand and the supply of these commodities.

India’s increasing population is one of the main factors in price hikes. The demand exceeds the supply by a huge margin and the demand keeps growing as the population increases. In addition, changing habits have increased the demand for certain commodities well beyond what can be supplied.

From a supply perspective, factors such as uncertain weather, lack of cold storage and lack of warehousing facilities play a huge role in pushing prices up. A very high percentage of vegetables and fruits are wasted because of inadequate cold storage facilities, affecting supply and raising prices.

Commodities such as petroleum, which are imported to a large extent, are subject to international prices. Therefore, the moment there is global shortage or global price hike, these commodities become dearer.

Artificial gaps in supply are created by unscrupulous operators such as black marketers, hoarders, and traditional traders. By holding back these commodities, they are able to create a bigger demand and thus, an increase in prices.

Since these commodities are essential, price hikes have both economic and political consequences. The price rises become part of the political agenda for opposition parties to attack the government. By doing this, they attempt to show solidarity with the common man. However, there is no doubt in the fact that it is the common man who is the one most deeply affected at the end of the day. Sweeping reforms are needed to control hoarders and reform agriculture in a way that price hikes for essential commodities don’t hit the common man where it hurts most – his wallet.

Essay on Causes of Rising Prices and its Effects – Essay 5 (500 words)

There is no denying the fact that the Indian economy is one of the world’s largest economies. It has recently superseded China as the fastest growing large economy and ranks third in Gross Domestic Product in terms of Purchasing Power Parity. While these statistics are good, the Indian economy is also facing many challenges, one of which is rising prices.

Causes of Rising Prices

The factors that cause prices to rise are twofold – internal and external.

• External – Global inflation is an external cause of price rise. When the prices of certain goods abroad are higher, importing these goods costs more. This increased cost is passed on to the consumer directly and indirectly. For example, when oil prices rise globally, it becomes more expensive to import oil. In turn, this affects the prices of oil products such as petroleum and diesel in our country. The consumer then has to pay higher prices to get these products. Since these are products that are used in transportation, costs of goods being transported also increase. Therefore, goods such as foodstuffs and other necessities also become more expensive.
• Rapid Population Growth – An increasing population demands an increasing amount of goods. Demand increases and supply can’t keep up, thus driving the prices higher.
• Income Increase – As the purchasing power of the population increases, the demand for goods and services also increases. Again, the demand outstrips the supply and prices go up.
• Insufficient Agricultural Output – Thanks to a growing population and increase in purchasing power, the demand for agricultural goods has increased. However, because this sector has been neglected to a significant degree, it cannot keep up with the demand. A drought or a flood is enough to disrupt supply and increase prices.
• Insufficient Industrial Production – The industrial sector has fared better at the hands of the government. However, industrial growth rate has only increased in the last 30 or so years. Therefore, certain industrial products such as basic consumer products and agricultural and industrial inputs have not been able to keep up with the demand which has resulted in a price hike.

Effects of Rising Prices

An increase in prices inevitably affects the lives of the general population. When the prices of basic goods such as food increase, people who are living just above the subsistence level slip down below the poverty line. It also affects the pockets of the population that has fixed incomes. Prices go up but their wages remain the same and, therefore, they are either forced to spend more or give up certain goods entirely. The rich are not really affected by the price rise and therefore, the gap between the rich and the poor widens almost daily.

Price rises aren’t affected only by what’s going on in the country but also by the situation across the world. While certain factors aren’t under anyone’s control, it is imperative that governments act upon what they do control to cap huge price hikes.

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Essay on Price Rise 300 words in English

Essay on price rise.

Essay on Price Rise, Although India has maintained its economic growth steadily common people are frequently by rising prices of oil, onions, tomato petrol, and diesel.

For a few weeks, sometimes for months, we hear nothing but of the agony of housewives or of salaried persons who are put to severe strain. Experts attribute price rise to many factors.

For instance, ease in fuel price is due to buoyancy in international prices. For vegetables and pulses, it is said that their yield in certain regions was affected due to drought, rains, or some plant disease.

Essay on Price Rise in English

Whatever the reason, it reflects badly on the government whose failure in controlling prices is quite evident. The problem is compounded due to the role of businessmen who sell commodities in the black market and create a man-made crisis.

It is also true that in today’s consumer society agriculture has taken a back seat. Farmers do not get their due either from the government or in the market. Their stress is accentuated by natural disasters.

And when a particular crop has failed its impact can be seen on the market as a whole. The worst sufferer is always the middle-class, particularly the salaried class. The dearness allowance that the government pays to its employees is not enough to meet their budget deficit.

Though it may be assumed that price rise affects the budget of the people only temporarily it has long-term effects also. Men and women who have to make adjustments in their budget all the year can hardly spend on health care and education of children.

They are forced to borrow money from banks for which they have to pay huge interest. it is therefore urgently needed that the government should take effective measures to control the prices of essential commodities.

300 Words Price Rises Essay

Without the stability of prices, all economic ambitions will remain only a dream and a substantial rise in the standard of living of the people will not be achieved. More importantly, the government needs to be sensitive to the plight of farmers.

Once their overall condition improves we can hope they would be able to stock their products in a better way to meet consumer requirements.

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Rise in Prices Essay

In recent times, there has been a steep rise in prices. There is felt, all over the country, an all-pervading rise in the price level. Majority of the Indians are living below the poverty line.

They are hit hard by the soaring prices of essential commodities. This spurt in the price level is a matter of serious concern and anxiety for the whole country.

India inherited inflation as a legacy from British rulers. Instead of setting the house in order, the rulers of free India developed a nexus with big industrialists and business magnates for their mutual benefit.

The governments had been quite generous in showering favours in the form of licences, quotas of articles to be imported from abroad, allotment of prime land for the establishment of factories, etc.

The industrialists, businessmen and press barons, on their part, contributed liberally to the election fund of the ruling party. Even many MPs and MLAs had been on the payroll of many business houses. This mutual give-and-take policy has played havoc with the lives of the weaker sections of the country.

This rich class of businessmen indulges in unhealthy practices like adulteration, smuggling, black-marketing and hoarding. They keep their interests above national interests. They raise the prices of the goods at will on one pretext or the other.

The government is never serious in checking the activities of such people. The administration is hand and glove with them because the officers are silenced by these crafty people through bribes. This class of traders and speculators cause the artificial fluctuation of the price-level by means of hoarding, speculation and black-money.

The abnormal rise in prices in India in recent years has been the result of a variety of factors. The inclemency of nature, as well as the weak economic machinery of the country, may be said to have equal effects on this rise in prices. Moreover, certain errors in governmental policy and the price level.

• First, the unscrupulous people belonging to the class of businessmen and industrialists are always on the look-out for the opportunity to mint money through all means. A stable and strong government at the centre is viewed by such people as a thorn in their flesh. They swing into action when era has come as a boon to them. They feel that the government is weak and unstable.
• Second. the problem of militancy and the proxy war waged by Pakistan Against India during the last decade has forced the government of India to focus its attention on meeting the challenge to her security. The China Indo War of 1962 and the three Indo-Pak wars have been responsible for the country have shot up.
• Third, there is a rapid growth of population in the country. This has exercised a heavy pressure on the price-level despite a satisfactory increase In food production. After all, it is difficult in India to cope with the fast-multiplying population by any simple increase in the production of food or industrial goods. The inevitable result is inflation.
• Fourth, the large scale development programme, undertaken by the government, has an indirect effect on the price level of the country. There has been felt a shortage of consumers goods due to the implementation of different projects under Five-year Plans. A rigorous policy of import control has also created a shortage of goods in the country. The price-level has gone naturally sky-high.
• Fifth, the.policy of deficit financing, rather recklessly followed, has an adverse effect on the price-level. The huge sums of money raised in different Plans by means of deficit financing to meet the developmental programme have added a lot to the inflationary trend in the country.
• Lastly, the increased expenses, incurred for importing petroleum products and the rise of their prices in the home market, has added to the inflationary potency.

With the induction of Mr Atal Bihari Bajpai as the Prime Minister of India a couple of months ago, the people of India heaved a sigh of relief. They have faith in his integrity, honesty and capability.

True to his professions, he has decided to smash the nexus between the business magnates and the rulers of the previous regimes and to weed out the canker of corruption by creating an institution of Lokpal.

To distract his attention they have again resorted to ugly means for creating chaotic conditions in the country. It is hoped that he will be able to meet the challenge posed by such elements.

The efforts of the previous governments to check inflation have proved ineffective because the efforts lacked sincerity of purpose. There is a payment in politics. The power that keeps the poor people in the cold grip of scarcity and high prices cannot escape the writing on the wall.

The present government knows it well and it is expected from the government that it will tackle the problem of price-rise effectively and bring it under control, Mere speeches and political slogans will not do. Sincere and Serious efforts in that direction will certainly pay dividends.

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