Inflation significantly affects both common citizens and the broader Indian economy. For the average person, rising prices reduce purchasing power, making essential goods like food, fuel, and healthcare more expensive and disproportionately impacting low- and middle-income households. For the economy, high inflation disrupts savings, investment, and business planning, while also increasing input costs and reducing export competitiveness. Persistent inflation can erode consumer confidence and lead to slower economic growth. To manage inflation, the Reserve Bank of India (RBI) adopts a monetary policy framework with an inflation target of 4% (±2%) under the flexible inflation targeting regime. Key policy tools include adjusting the repo rate (currently the primary instrument), open market operations, cash reserve ratio (CRR), and statutory liquidity ratio (SLR). By raising interest rates, the RBI aims to curb excess money supply and reduce demand-driven inflation. Additionally, the RBI closely monitors global commodity prices, currency fluctuations, and domestic supply-side constraints to formulate appropriate responses and ensure price stability while supporting growth.

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