Debt instruments look attractive as interest rates go up

The inflation rate has been ruling quite high in emerging nations ever since the global economy came out of the recession last year. On the other hand, inflation remained quite subdued in the developed nations last year. However, it has started rising in the developed nations as well recently, which is a cause for concern across the world.

The reason for the current situation and root cause of inflation is quite complex due to the involvement of several factors - global as well as domestic. That is why it is getting more difficult to get a handle on the situation. In India, the initial wave in inflation was fuelled by rising prices of food articles. Later, it was driven by rising prices of fuel, manufactured goods and non-food articles. Analysts believe that globally inflation is likely to remain firm in the short to medium terms, and it requires a synchronised effort across various policies to control the situation.

These are some of the main factors that are expected to influence the inflation rate in the short to medium terms here:

Commodity price

As the global economies are recovering, the prices of global commodities such as fuel and metals are expected to rise due to more demand. Higher price in international commodities is a major factor that can influence the inflation rate here.
The cascading effect of high prices in international commodities and food articles , and high interest rates, on the manufacturing sector , is another important factor, going forward.

Supply chain

The supply chain inefficiencies , and speculation in agricultural commodities and food articles has already created panic, and triggered sharp price rises many times in the past. This is another major factor that can influence the inflation rate here, going forward .

RBI measures

In India, the government and the Reserve Bank of India (RBI) are taking a tough stand against inflation . The RBI has already raised the key interest rates seven times over the last 18 months. The policymakers are ready to compromise on economic growth to some extent to deal with the rising inflation rate because the implications of a high inflation rate are quite widespread, especially for the economically weaker sections.
Uncontrolled inflation is actually destructive for a country as consumers and investors change their spending habits.