As per govt. of India, the annual retail inflation rate in India rose to 4.48% in October 2021 from 4.35% in September. Food inflation went up from 0.68% to 0.85% though the cost of veggies declined by 19.43%. Edible oil rose by around 34%, fuel and electricity went up by 14.5%, transport and communication by 11% and healthcare went up by 7.5%.
These, most likely, are highly deflated numbers. Unless you have been living under a rock, you will know the inflation is much higher than the 4.48% estimated in this report.
With an assumption of lower band inflation rate of 4.48% flat, 10 Lakhs of cash would be worth 6.6 Lakhs in 10 years.
Similarly, inflation is on rise in USA, Europe and other developed regions and worse in developing ones. Politicians would love to attribute this to Covid-19, which partially is responsible for inflation due to supply chain disruptions. However, inflation rate wasn't exactly flat before Covid-19.
Let me show you some graphs so you think I am smart.
M2 Supply: M2 is a measure of the money supply that includes cash, checking deposits and other forms of cash. What you see here is India's M2 Supply. Scale is in Billions. Notice the rate at which M2 supply is increasing. It was around ₹14,000 Billion in 2010 and is currently around ₹50,000 Billion. Money is printed in order to fund
social programs, infrastructure development, defense spendings, etc.
India's inflation index as per Food and Agriculture organization of UN.
Notice how Covid-19 caused a huge, sharp spike in inflation? No? That's because we had worse inflation numbers without a deadly virus disrupting supply chains. Let's park this data aside for sometime while I talk more shit about other stuff.
I know you will just look at orange color for India and assume its bad news. And you are right. This map shows Share (%) of population that can't afford a healthy diet - World Bank 2017 report. The data in terms of absolute numbers is even worse for India.
Listen, I am not saying the UN or World Bank show the cleanest or most unbiased data available. But you don't need this graph when you see the data around you all the time.
Let's try to connect these dots now. The vicious loop of questions & answers
Why is inflation so high?
Because governments are increasingly printing more money out of thin air.
Why are governments printing so much money?
Because there are problems like hunger, homelessness, etc. in world which, according to governments, can only be solved with more money.
So why are hunger and other problems still rampant?
Because there is inflation and everything becomes more expensive every passing day.
Wait, why is inflation so high?
Because governments are increasingly printing mor......aah shit here we go again.
Congratulations on making it till here. Assuming you read this and previous 2 blogs, we can infer few things.
Money was not always centralized or unlimited in supply.
The fall of Gold Standard in 1971 allowed central institutions to print unlimited money and avoid fallout from poor economic policies. Rubber band is reaching its limit though.
The M2 supply and inflation is rising rapidly while state of the affairs has not changed much.
This is inflation in a nutshell. There would be counter arguments and I agree with a lot of them. Yes - some amount of inflation is healthy, specially for developing economies. Yes - We need to fund our infra plans. But NO - This is not the one stop solution for all the socioeconomic problems.
-Macro Bullish
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