Special Topic – Inflation & Cost of Living

Page 2: Causes of Inflation in India

Date: 07 February 2026

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1. Demand and Supply Gap

One of the main reasons for inflation is the gap between demand and supply. When demand for goods is higher than supply, prices increase.

• Population growth increases demand
• Limited production leads to shortages
• Essential goods become expensive

2. Increase in Fuel Prices

Fuel is the backbone of the economy. When petrol and diesel prices rise, transportation costs increase.

• Higher transport cost raises food prices
• Industrial production becomes expensive
• Overall inflation rises

3. Rising Food Prices

Food inflation is a major concern in India. Vegetables, pulses, edible oils, and cereals often see price hikes.

• Crop failure due to climate change
• Monsoon irregularities
• High storage and distribution costs

4. Global Factors

Inflation is not only a domestic issue. Global events also influence prices in India.

• Crude oil price fluctuations
• Global supply chain disruptions
• Geopolitical conflicts (like Middle East crisis)

5. Government Policies and Taxes

High indirect taxes on fuel and goods contribute to inflation. Sometimes excessive government spending also increases inflation.

• Higher GST on certain goods
• Increased subsidies without matching production
• Fiscal deficit pressure

6. Money Supply in the Economy

When too much money is available in the economy, but production does not increase at the same pace, inflation rises.

• Easy loans and credit availability
• Low interest rates for long periods
• Higher consumption spending

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This page explains the major causes of inflation in India in a simple and exam-oriented manner.