US inflation has reached a 40-year high. The US Labor Department has released inflation data for the 12 months ended in January. It has increased to 7.5%. This is the highest level of inflation in the US since 1982.
Experts did not expect such a steep rise in inflation. This has surprised even the experts. Inflation data has had an impact on the US stock markets. There was a big fall in the US stock markets on Thursday. Its effect was also visible on the Indian stock markets on Friday. Sensex fell over 900 points. After all, why is rising inflation in America affecting the Indian stock market? Let us know the answer to this question.
people’s budget spoiled
People in America are facing problems due to the rapid rise in inflation. Gasoline (petrol) prices have increased by 40 percent in the last one year. The prices of used cars and trucks have increased by 41 per cent. The price of furniture has gone up by 14 per cent and that of women’s dressage by 11 per cent. The increase in prices has spoiled the budget of the people.
Inflation has been increasing continuously for a year
The Federal Reserve did not expect inflation to rise this much in the US. The consumer price index was just 1.7 per cent in February last year. Then gradually it continued to increase. It has reached 2.7 percent in March, 4.2 percent in April, 4.9 percent in May, 5.3 percent in June, 6.2 percent in October, 7.1 percent in December and now 7.5 percent.
Why did inflation increase?
In the year 2020, the corona epidemic had the biggest impact on economic activities. It destroyed the economy. Economic activities came to a standstill due to the lockdown. Shops were closed. People were locked in homes. Companies fired more than 2 crore people. Due to this industrial production fell drastically.
The companies did not make fresh investments for fear of the continuation of the pandemic. But, earlier than expected, the recovery started in the economy. The economy was helped by measures by the government and the Federal Reserve to increase liquidity. Due to the vaccination, the confidence of the people increased. This started increasing the demand. The supply did not increase according to the sudden increase in demand. This has pushed inflation to a 40-year high.
What will be the effect on India?
The effect of rising inflation in America was visible on the Indian market on Friday. There are special reasons for this. Actually, when inflation is very high in any country of the world, it also affects other countries. Especially when it comes to the American economy, then the effect of high inflation is sure to fall on other countries including India. First, the impact is in the form of higher imported inflation. This means that we will now have to pay a higher price for the things we import from America. Their prices will also be higher in the domestic market. This will have a direct impact on domestic inflation.
Second, to control inflation in the US, the Federal Reserve will increase the interest rate rapidly. This will increase the yield in America. This will allow foreign funds to withdraw money from emerging markets and invest in the US. Third, rising interest rates in the US will make it more expensive for Indian companies to raise money there. However, Indian companies do not raise a lot of money in the US right now.
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