Let’s throw it back to 2010.
A kilo of tomatoes cost ₹10, a small shop owner could rent a decent store for ₹5,000 a month, and the cost of building a home was nearly half of what it is today. Now imagine that none of those prices ever changed, even in 2025.
Sounds like a great deal, right?
But here’s what no one tells you: if prices don’t rise, neither do profits. That small shop owner? Still selling at 2010 prices. His rent is cheap, but so are his margins. He can’t charge more, can’t reinvest, can’t expand. Why would any business take risks if the reward is static?
And think about real estate. If property values never go up, there’s no incentive to build, buy, or invest. Projects stall. Investors stay away. The economy stagnates.
That’s where inflation enters the picture—and whether we like it or not, it’s here to stay. The trick is understanding that inflation isn’t just a random rise in prices. It’s part of how a modern economy breathes.
What Causes Inflation Anyway?
Before we get into why it might be a necessary evil, let’s break down why inflation happens in the first place. Economists usually point to three main drivers:
- Demand-Pull Inflation: This one’s pretty intuitive. If more people want a product than there are units available, prices go up. Remember Coldplay concert tickets? When demand outstrips supply, sellers can charge more.
- Cost-Push Inflation: This occurs when production costs rise, like raw materials, labour, or energy, and companies pass those costs on to consumers like you and me. Just like how oil prices going up has made your flights more expensive?
- Built-in Inflation (or Wage-Price Spiral): This is a feedback loop. Workers want higher wages to keep up with rising costs. Employers raise prices to cover higher wages. Repeat. It’s like chasing your tail, at least economically.
The Reserve Bank of India targets to keep inflation between 2% and 6% annually. Too less can bring the economy to stand still and too much can spiral into chaos. Zimbabwe and Venezuela ar prime examples of hyperinflation.
Isn’t Inflation Bad?
It’s easy to assume inflation is a villain who enjoys increasing our grocery bill every month. But the catch is that a little bit of inflation actually keeps the economy alive.
Let’s unpack that.
Inflation Encourages Spending
If you know your money will lose a bit of value next year, what are you more likely to do? Spend it now. That’s good news for businesses. It drives consumer demand, boosts sales, and stimulates economic activity. Deflation—the opposite of inflation—can be far worse, because when prices drop, people delay spending, waiting for better deals. And when spending stops, growth stops.
It Makes Debt More Manageable
Home and education loan borrowers might benefit from inflation. The fixed/ predictable nature of such loans, rising prices and potential salary increases mean that over time, the debt’s real value will decrease. Essentially, repayments are made with less valuable Rupees.
Governments benefit from this too. Inflation helps reduce the real burden of national debt.
Wages Tend to Rise (Eventually)
In a growing economy with mild inflation, employers raise wages to attract and keep talent. Although it’s not proportional, but generally speaking, inflation and wage growth tend to move together—at least over a long period.
So while rising prices can feel like a burden, a total freeze can choke ambition, kill innovation, and stop progress.
Yes, it can be annoying. Yes, it can get out of control. But in small, steady doses, inflation is like the engine oil of capitalism: not glamorous, but absolutely essential. Inflation, when controlled, fuels growth. It allows businesses to earn more, encourages investments, and drives development. Without it, the whole economy freezes.
The Flip Side: When Inflation Goes Rogue
Uncontrolled inflation is dangerous. When prices spike faster than wages, people choke. Essential goods become unaffordable. Savings lose value. If it hits hyperinflation levels, it can collapse entire economies.
Even moderate inflation can become a political and financial headache if it’s unpredictable. That’s why central banks use interest rates like a steering wheel—raising rates to cool inflation, cutting them to avoid recessions.
So, Is Inflation Good or Bad?
That’s the wrong question. The real question is: How much inflation is healthy? A stable, predictable rate—2-6% is a sweet spot for India. It motivates spending, keeps wages moving, eases debt, and signals economic growth.
Think of it like body temperature. 98.6°F? Perfect. 105°F? Hospital. 90°F? Also hospital!
The key is balance.
Inflation vs. Deflation: Which Is Worse?
Inflation is when prices rise over time; deflation is the opposite—a sustained drop in prices across goods and services. While inflation eats into your purchasing power, deflation can stall the entire economy. When people expect prices to fall, they stop spending, businesses earn less, jobs are cut, and growth dries up.
Take Japan, for example. Since the 1990s, it has struggled with deflation. Consumers delayed purchases, investments slowed, and the economy remained sluggish for decades, despite ultra-low interest rates.
A little inflation keeps the economy ticking. Deflation puts it in reverse.
Final Thought: Embrace the Necessary Evil
Look, no one’s asking you to celebrate inflation. But next time you hear someone rant about rising prices, consider the bigger picture.
Without inflation, there’s no incentive to invest, borrow, or spend. No growth. No raises. No innovation.
In short, inflation isn’t the enemy. It’s the cost of living in a dynamic, forward-moving economy. Annoying? Sure. But necessary? Absolutely.
See you next time.
Until then… Stay Prudent!
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