Mehengai (inflation) is zaroori

Mehengai or inflation is a common word that races across everybody’s minds when the price of a commodity or any product rises. People usually consider inflation negative, blaming the government or businesses for a surge in prices. What if one says that inflation is good and essential for any country? Inflation does keep interest rates and employment in check.

Let’s imagine that the price of a certain product like whole wheat flour is rising. Customers could now fear the possibility of another price rise. It may induce them to buy more, leading to a higher demand. A higher demand puts an upward pressure on product pricing. The rising prices can induce companies to produce more in anticipation of greater profits. This results in higher production and more employment, thus contributing towards a nation’s welfare

What if prices start to fall:
Picture a scenario where the price of a product is falling! Consumers tend to postpone their purchases by assuming that they can get better deals in the future. When every customer holds the same perception towards buying, it can lead to a domino effect and drive prices much lower. This can induce companies to halt or reduce their production, resulting in job cuts and unemployment. If prices fall over the long term, then the country may face deflation. Overcoming deflation can be very difficult for any nation even after utilizing the support of Central Banks.

Inflation just might be good! Interest rates are used to control inflation. As inflation above 0% can lead to interest rates above 0%, it might be favorable for the economy. Keep in mind that an excess of
everything is harmful! Inflation higher than a country’s GDP growth too is an unfavorable economic sign!

Let’s look at this with the inflation histories of three nations as examples:

1. China: Since 1989, China’s GDP has grown at an average rate of 9% and inflation rate has been around 5%. This is a great example of controlled and healthy inflation. As this country registers moderate inflation, it’s easily able to outgrow the inflation rate.

2. Zimbabwe: A classic example of hyperinflation, Zimbabwe recorded product prices rising over 50%
monthly. In 2020, the inflation rate here was more than 500%. Curious how much how much a loaf of
bread costs here? It’s 35 million Zimbabwean dollars.

3. Japan: Japan has faced negative inflation for the last three decades. Currently, Japan is facing deflation wherein prices in general are declining or you can see a negative inflation rate.