BUSINESS CONTEXT IN INFLATION CONCEPT (1).pptx

1. INFLATION
BY
BERIN B
KARTHICCK
SREE TAMIL

2. INFLATION
• Inflation is the rate at which prices for goods and services rise.
• It is sometimes classified into three types:
• demand-pull inflation,
• cost-push inflation, and
• built-in inflation
• The most commonly used inflation indexes are the
• Consumer Price Index - retail prices of primary goods and services
• Wholesale Price Index - wholesale level
• Inflation can be viewed positively or negatively

4. INFLATION MAY REMAIN ELEVATED DESPITE
JULY DIP
High frequency price data suggest that headline inflation is likely to remain
around July levels in August. We expect headline inflation to remain above
6% until February 2023, and core CPI inflation to remain sticky at a shade
under 6% in the remaining months of FY2023. (Varma & Nandi, 2022)

5. INFLATION RATE IN INDIA:
India's retail inflation eases to 6.71% in July
Current causes of inflation:
• Supply shortages – Covid 19 & Russia,
Ukraine war.
• Bulging up of Indian population

6. IMPACT OF INFLATION ON BUSINESS:
Increase in cost of materials
Higher wages to employees
Uncertainty and volatility – creates doubts
while investing.
With rising interest rates increases
borrowing costs – again creates doubt from
investing
Difficulty in expansion of business as
borrowing costs are higher.
Reduces the cost of existing debt.
Business with low competition is not
affected but a business with higher
competition is most affected.

7. SUCCESSFUL INDIAN BUSINESS DURING INFLATION
ASIAN PAINTS
• The company is one of the best stocks to own during inflation as it has pricing power
i.e. the ability to pass on the rise in input costs without affecting demand.
• During the September 2021 quarter, the company's net profit dipped 29% YoY as high
input costs dented margins. Its operating profit margin narrowed by almost 11% to
12.8%.
• To mitigate the impact of this persistently high inflation, the company took a series of
2021, it took more than a 20% price hike across products. Despite the price hikes, its
by 32% YoY.

8. INFLATION IN THE UNITED KINGDOM
In July 2022, inflation in UK hit a 40-year-high of 10.1%.
Concerned about the rising costs of basic human needs, like
fuel and food, the Bank of England, the U.K.’s central bank,
decided to raise interest rates by 50 basis points - the biggest
increase since 1995.
The bank’s Governor Andrew Bailey noted in an interview,
“We’re facing a very big shock to inflation.” Further, he
shared during a press conference that the country’s GDP
growth has slowed, and the U.K. economy is likely to enter
a recession later this year.

9. INFLATION IN THE UNITED STATES
“There’s a clock running here, where we have
inflation running now for more than a year,”
the Chair of the Federal Reserve of the United
States, Jerome H. Powell, noted in June 2022.
Inflation in America, like in the U.K., hit a
four-decade high of 9.1%. From beer to
grocery - rising prices on seemingly
commonplace items are shrinking people’s
grocery lists and making them reevaluate their
finances.

10. INFLATION IN POLITICAL CONTEXT
Politically, inflation has always been a big risk for
ruling establishments. As global inflation led by
energy and commodities fully seeps into the Indian
system, it will start having its impact on the electoral
prospects of the Bharatiya Janata Party (BJP).
Today, the prices of petrol, diesel, cooking gas,
edible oils are at an all-time high. Once the genie of
inflation is out of the bottle, as it does once in a
decade or so, no amount of narrative spinning by the
Modi government will work.

11. HOW INFLATION AFFECTS THE NORMAL LIFE
• Food inflation causes the price of the food to hike, when the price of the food
increases, the poor will reduce the amount of food they consume.
• Home loan EMI will see a hike.
• The government allowed pharma companies to hike price by 10% for essential
medicines.
• Increase in the price of LPG.
Inflation threatens the daily life of common people who just recovered from Covid-
19 impact.

12. HOW TO CONTROL INFLATION?
The Reserve Bank of India (RBI) is mandated to keep inflation at 4 per cent, plus-minus 2 per
cent.
RBI ways to control inflation:
• Increasing bank rates, repo rates, cash reserve ratio, buying dollars, regulating money
supply and availability of credit.
• These all reduces the money supply in the market, thus reducing the demand.
• Supplies can be strengthened to reduce the Cost-push inflation – providing subsidies
and technological expertise