Inflation - Hogging the LIME-light (Part 1 of 3)

Team MBAtrek 26 May, 2022 Business Insights

In this blog, we are going to talk about the escalating prices of the food you eat. The recent surge in the price of certain staples, especially vegetables, might have grabbed your attention. In numerous parts of the country, the prices of vegetables have shot up due to which both the buyers and the sellers are in agony. Amidst vegetables, one of the steepest hikes can be seen in the prices of lemons.



“When life gives you lemons, make lemonade” is a common proverb that we all must have heard. Perhaps a more fitting proverb could be “When life gives you lemons, store them in a safe” or “The time when the entire country needed a lemon-aide”. Keep the jokes apart, the lemon situation has gone so bad that “lime robbery” is a thing now.



Now you must be wondering how on earth are these small yellow fellows wreaking havoc by flexing a price tag as high as ₹350 per kilogram. Let’s talk about why the prices are going up. During a recent debate in the parliament, the government stated that the average inflation rate has gone up from 3.4% to 6.1% in a period of 3 years (2018-2021) to a provisional of 5.3% this year.



It was also reported that in October 2021 the inflation went up as high as 7.61% and in May 2022, the rate went all the way up to almost 7%, again an all-time 40-year high.



Even RBI is getting worried that it has bumped up its estimates, so it is changing its policy stance to figure out how to keep the prices stable.



For a common person, these percentages don't mean much. Be it 6% or 7%, the question that you have is - "How is inflation going to affect me?" We are here to tell you how these percentage shifts in inflation can burn holes in your pockets, but before coming to that part let's get you comfortable around inflation.

Simply put, inflation is the gradual rise in the price of goods for which there are 3 major reasons.


Decrease in the purchasing power of money
In macroeconomics and modern monetary policy, a devaluation is an official lowering of the value of a country's currency within a fixed exchange rate in which a monetary authority formally sets a lower exchange rate of the national currency concerning a foreign reference currency or currency basket.

Confused? Let us try and make it simpler for you.


Say in the year 2012 you had ₹100 with you, you could buy yourself half a kg of butter but today if you are willing to spend ₹100 on butter, you can buy only 200g of it and hence this phenomenon is called as a decrease in purchasing power of money.


Turns out that “Utterly Butterly is not so budgetly” now.




Demand and supply

Basic economics tells us that when demand for a product goes up, but supply doesn’t, or when demand remains the same, but supply goes down, the prices go up and so is the case with lemons here. The reason for this shortage in supply was caused due to the cyclone Tauktae.




Increase in input and supply chain cost

To understand input and supply chain cost, you need to realize that something like lemon doesn’t appear out of nowhere to shed savory tears on your bhelpuri. There is a giant supply chain behind it, and it starts from a farmer growing a crop of lemon on their farm for which they additionally need fertilizers, water, electricity, and manpower. Post this a successful crop is harvested which needs to be loaded on a truck and transported to a market, which demands fuel, and then a vendor whom you are buying your bhelpuri from, will buy this lemon to squeeze it on top of your bhelpuri.




Now since you have understood how long a journey is covered by a lemon to reach your bhelpuri, you must also realize that the increase in the price of any of these commodities will lead to a rise in the price of lemon. And, now since the price of fuel is going up because of the increase in international crude prices, the transportations costs are also going up and as result prices of daily use items are going up as well. There are certain other global factors that have contributed to inflation, such as the Ukraine-Russia War, overprinting of US Dollars by the US Federal Reserve, etc.


We believe that by now you are clear about inflation and price rise. In the next part of this series, we will cover how has inflation affected you over time.

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