Inflation, the sustained rise in general price levels, has far-reaching implications for an economy. In India, where a significant proportion of the population relies on fixed incomes and wage-based earnings, high inflation not only erodes purchasing power but also accentuates income inequality and affects poverty alleviation efforts, making it a critical concern for inclusive growth.

Impact on Income Inequality:

1. Erosion of Real Wages: Fixed-income earners and daily wage workers face a decline in purchasing power, while those with asset-backed or inflation-adjusted incomes are relatively insulated.
2. Wealth Concentration: The top 1% of the population controls about 22.6% of national income and 40.1% of wealth, allowing them to hedge against inflation through property and financial assets.
3. Asset Ownership Effect: Households dependent on cash savings are more vulnerable, widening the wealth and opportunity gap.

Effects on Poverty:

1. Food Security Vulnerability: Inflation in essential commodities, particularly food, disproportionately affects the poor, especially in rural areas. Though food inflation was -0.8% in July 2025, price volatility can strain household budgets.
2. Rural-Urban Divide: Rural populations face higher exposure due to lower incomes and limited access to financial instruments for protection against inflation.
3. Impact on Poverty Reduction: Despite inflationary pressures, India has reduced extreme poverty to 2.3% in 2022–23, but high inflation can stall further progress.

Policy Interventions for Price Stability and Growth:

• Monetary Policy:
  • Inflation Targeting: RBI maintains inflation within the 2–6% band.
  • Repo Rate Adjustments: Strategic changes balance growth and price stability.
• Supply-Side Measures:
  • Buffer Stock Management & Market Intervention: Ensures stability in essential commodity prices.
  • Targeted Schemes: Programs like Operation Greens stabilize prices of perishable goods.
• Social Safety Nets:
  • National Food Security Act & Bharat Brand Initiative: Provides subsidized essential commodities to vulnerable groups.
• Trade & Fiscal Measures:
  • Strategic Imports & Export Restrictions: Secures domestic supply during shortages without fueling inflation.

High inflation in India has the potential to exacerbate income inequality and affect poverty reduction, particularly among rural and low-income populations. A comprehensive strategy, combining monetary discipline, supply-side interventions, social safety nets, and trade measures, can ensure price stability while sustaining growth, supporting inclusive and equitable development.