post 4
Dated5/5/2020
Inflation
snippet Today we will explore the reason why prices rise and how to fight this rise, ending up in profits :)

We have all seen our parents and grandparents complaining about high prices today as compared to their times. But why do prices rise?? Why the value of money depreciate over time?? read till end to find out

Inflation is primarily caused due to several reasons but the main factor is the increase in demmand of a product. The basic Economic rule of Demand and supply plays a major role in deciding the prices of a product.
For example if everyone becomes fairly rich to purchase a product and everyone wants it say a pack of candies, but there’s a prolem that the production of pack of candies is limited, so all the rich kids of town with a sweet tooth would compete to get candies, Here comes the clever shopkeeper that rises the price of candies hence only the kids with some extra bucks would be able to get caries :). This shopkeeper in practical life is the market temprament that controlls the price of a comodity
This game applied in reverse is also true, Example the Global demmand of Crude oil has declined due to lockdowns to fight chinese virus , This lowered demmand has deflated the crude oil and it even surpassed zero value.
another factor is Global Exchange rates
example you wan’t an imported product or your products have imported parts then the fluctuations of Forex would also affect the prices
The hidden Evil of inflation.
the inflation rates should always be checked to avoid lossed on your investments,Say your bank gives you a savings interest @3.5% P.a but the inflation is standing up high at 6%p.a then what would be your real position after an year of wait ?? -2.5% and you never realised it. This hidden inflation should be adjusted and analysed before making any investment. The interest rate that banks tell us is called nominal interest but when we add the effects of inflation we get interest rates called real interest. so Always calculate your expectations on Real interest instead of fake and misguiding Nominal interest rates.

measure of Inflation inflation is monitered by two main indexes that provide statistical data on prices, These two are:
CPI (consumer price index) used for retail inflation
WPI (Wholesale Price Index) used for wholesale inflation
but wait inflation can be usefull too, but How?? there is an allowance by our government called Indexation and believe me not much people use this big gun to fight inflation,so how does it works?? indexation is based on a logic that if you sell something purchased in past, It’s prices might have appreciated a lot but the government wants taxes on your profit but wait,,there we cut a lot of bucks from tax accounting for inflation.
example you purchased an asset in year2000 for rupees 100, after 20 years you want to sell that and it is going to fetch you 1000 rupees, and government wants say 10% on your profit i.e 10% of900 = 90 rupees. but wait, You’ll argue that when you purchased that asset back in 2000 the CPI was at 100 and today it stands at 280 this means that something available for 100 in year 2000 is available at 280 today(180 rupees costlier) so your net profit adjusted for inflation becomes rupees 900-180= 720. so you should invite government to tax 720 not 900 at 10%
this implies your tax due is 10% of 720 i.e. 72 rpuees not 90
boo ya you saved 20% on your tax thank me later back on initial Topic: How do prices rise, in the above example we’ve seen that prices rise when demand is more than supply but the demmand is also decided by the ability of public to purchase, or direcly controlled by the cash in hand. This cash in hand or your bank Balance That can be easily accessed unlike a fixed deposit is called liquidity in market. This liquidity shows how fast the money can flow or purchases can be made. to counter inflation rising sky high, The regulatory body of INDIA called RBI uses a tool called Monetry Policy, It is used to controll the amount of money that you have in your pocket»read tommorow’s post to find out. for the time being Enjoy This clip