Skip to main content

Factors influencing inflation and How to deal with it

 

   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.


   These are some strategies you can adopt in the current situation of high inflation:

Stock market strategies    

Inflation influences the market sentiment, and therefore in general, investors should remain cautious in the markets as the valuations are not cheap. The interest rate hikes by the RBI decrease the potential of stocks due to higher interest burden on companies, reduced aggregate demand and the increase in expected rate of returns from investments. The markets are expected to remain range-bound with a negative bias.


   In addition to the general market direction, you should remain cautious on positions in interest ratesensitive sectors.

Debt market strategies    

The returns from debt instruments have gone up due to interest rate hikes. Investors with a low risk appetite should look at increasing their portfolio allocation to debt instruments.


   You can also look at diversification of your debt portfolio by investing in instruments such as gold and silver which have a better outlook for the short to medium terms.

Loan portfolio    

The environment has turned quite bad for borrowers. Many rate hikes by the RBI have resulted in loans getting expensive across all categories. Those with a large loan are facing the heat of higher EMIs.


   Since the high interest rates are going to stay for some time, it is advisable to look for alternatives to augment income, or reduce the loan burden through partial prepayments.

Popular posts from this blog

ULIP Review: ProGrowth Super II

  If you are interested in a death cover that's just big enough, HDFC SL ProGrowth Super II is something worth a try. The beauty is it has something for everybody — you name the risk profile, the category is right up there. But do a SWOT analysis of the basket, and the gloss fades     HDFC SL ProGrowth Super II is a type-II unit-linked insurance plan ( ULIP ). Launched in September 2010, this is a small ticket-size scheme with multiple rider options and adequate death cover. It offers five investment options (funds) — one in each category of large-cap equity, mid-cap equity, balanced, debt and money market fund. COST STRUCTURE: ProGrowth Super II is reasonably priced, with the premium allocation charge lower than most others in the category. However, the scheme's mortality charge is almost 60% that of LIC mortality table for those investing early in life. This charge reduces with age. BENEFITS: Investors can choose a sum assured between 10-40 times the annualised premium...

Section 80CCD

Top SIP Funds Online   Income tax deduction under section 80CCD Under Income Tax, TaxPayers have the benefit of claiming several deductions. Out of the deduction avenues, Section 80CCD provides t axpayer deductions against investments made in specific sector s. Under Section 80CCD, an assessee is eligible to claim deductions against the contributions made to the National Pension Scheme or Atal Pension Yojana. Contributions made by an employer to National Pension Scheme are also eligible for deductions under the provisions of Section 80 CCD. In this article, we will take a look at the primary features of this section, the terms and conditions for claiming deductions, the eligibility to claim such deductions, and some of the commonly asked questions in this regard. There are two parts of Section 80CCD. Subsection 1 of this section refers to tax deductions for all assesses who are central government or state government employees, or self-employed or employed by any other employers. In...

Am you Required to E-file Tax Return?

Download Tax Saving Mutual Fund Application Forms Invest In Tax Saving Mutual Funds Online Buy Gold Mutual Funds Leave a missed Call on 94 8300 8300   Am I Required to 'E-file' My Return? Yes, under the law you are required to e-file your return if your income for the year is Rs. 500,000 or more. Even if you are not required to e-file your return, it is advisable to do so for the following benefits: i) E-filing is environment friendly. ii) E-filing ensures certain validations before the return is filed. Therefore, e-returns are more accurate than the paper returns. iii) E-returns are processed faster than the paper returns. iv) E-filing can be done from the comfort of home/office and you do not have to stand in queue to e-file. v) E-returns can be accessed anytime from the tax department's e-filing portal. For further information contact Prajna Capit...

IDFC - Long term infrastructure bonds - Tranche 2

IDFC - Long term infrastructure bonds What are infrastructure bonds? In 2010, the government introduced a new section 80CCF under the Income Tax Act, 1961 (" Income Tax Act ") to provide for income tax deductions for subscription to long-term infrastructure bonds and pursuant to that the Central Board of Direct Taxes passed Notification No. 48/2010/F.No.149/84/2010-SO(TPL) dated July 9, 2010. These long term infrastructure bonds offer an additional window of tax deduction of investments up to Rs. 20,000 for the financial year 2010-11. This deduction is over and above the Rs 1 lakh deduction available under sections 80C, 80CCC and 80CCD read with section 80CCE of the Income Tax Act. Infrastructure bonds help in intermediating the retail investor's savings into infrastructure sector directly. Long term infrastructure Bonds by IDFC IDFC issued an earlier tranche of these long term infrastructure bonds on November 12, 2010. This is the second public issue of long-te...

What is Electronic Clearing Service (ECS)?

  As the name suggests, it's an electronic process through which money can be transferred from one bank account to another. According to RBI, this mode is usually used for regular payments and receipts, like distribution of dividend, interest, salary, pension etc. This mode is also used for collection of bills for telephone, electricity, water, various types of taxes, payment of EMIs , investments in mutual funds , payment of insurance premium etc. There are two types of ECS , like most other banking transactions, ECS credit and ECS debit. An ECS credit is used by a bank account holder , usually a large company or an institution for services like payment of dividend, in terest, salary, pension etc. If your mutual fund pays you dividend to your bank account, of all probability it is being paid through ECS credit.ECS debit, on the other hand, is used when a company or an institution is getting money from a large number of people. For example if you are investing in a mutual fund sc...
Related Posts Plugin for WordPress, Blogger...
Invest in Tax Saving Mutual Funds Download Any Applications
Transact Mutual Funds Online Invest Online
Buy Gold Mutual Funds Invest Now