Well, its only in movies that ‘they live happily ever after.’

Every party has to come to an end and this party also seems to be near an end too. Due to over expanding money supply which was happening in the economy, there was too much money chasing a fixed set of good and services which were there in the economy. Whenever such situation arises, inflation in the economy increases. As a result of which prices of good and services produced also increases and hence we see, everything getting expensive, right from petrol to sugar prices. We are seeing unprecedented prices level all across Europe and the world. Adding fuel to the fire (quiet literally) has been Russia Ukraine war, where it has not only caused humanitarian losses, but also led to massive fuel and food supply chain disruptions, further exacerbating the situation. 

Now lets analyse it in a summary 

Money printing=Inflation

Russia Ukraine war=Supply chain disruption=Inflation

Limited Fuel Supply=Inflation

This all prepares a recipe for disaster and that is what we are sitting on right now. 

The screenshot given below shows what are we sitting on; times of unprecedented inflation are coming ahead of us. 

In order to curb this, the central government and banks have decided to increase interest rate. Now, a question pops up, why interest rate?

This is because, when money supply in the economy has to be increased and we need people to buy and consume more, we decrease the interest rate. But this has led to higher prices for the same set of goods, hence we have to increase the interest rate. But the impact of the same is that, as interest rates increase, a lot of progress that was happening because of the virtue of cheap money will come to a halt now.

Hence we are hearing murmurs of economic recession around the corner as finding money at  an easy interest rate is no longer going to be possible. Money flow will stop and slowly and fight for money will ensure which will reduce the profits of the corporations and eventually leading to a slowdown. 

Hence we see a rising interest rate scenario. 

Impact is already visible in falling stock market and reduce in pace of economic growth. 

The article is written by Nikhil Gupta, Founder PoonjiMitra

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