What Is Economic Skewflation? What Cause Skewflation

What is Skewflation?

Skewflation is defined as a price rise of one or a small group of commodities over a sustained period of time, along with decreasing prices in others.

Skewflation is a state in which the economy shows the characteristics of both inflation and deflation. For example, some commodities exhibit an inflation trend while other commodities show deflation during the same period. When this occurs, neither inflation nor deflation is used hence the term skewflation.

It is one of the newest terms coined in economics following the 2009 – 2011 skewflation pressures India faced due to the ruse in the prices of a particular commodity like onions and potatoes while other commodities’ prices remained unchanged.

It is un-usual inflation, where there is an inflation in one particular sector for a particular period of time, while the other sector is experiencing no changes at all or facing deflation.

Skewflation Vs. Stagflation

A rising cost of living (inflation) coupled with falling asset prices such as houses (deflation). Skewflation is the opposite of stagflation, but not inflation or deflation.

Stagflation is a term used to define an economy with inflation, a slow or stagnant economic growth rate, and a relatively high unemployment rate.

SKewfaltion Vs. Reflation

Reflation refers to the government’s policies to bring back up its economy to a desirable nature after the economy experienced a prolonged dip in the economic cycle (recession). The policies adopted by the government are economic in nature and involve acts aimed to increase the money supply in the economy or reduction of tax rates, adjusting interest rates, etc. A reflation is an act against deflation.

Skewflation refers to the economic situation where prices of only a commodity or a group of the commodity rise, while the general price levels remain constant. Skewflation means the skewness of inflation among different sectors of the economy — some sectors are facing huge inflation, some none, and some deflation.

Reflation is not an economic phase but a process. The acts/process of bringing back inflation to desired levels by increasing the money supply. Mostly by providing Monetary stimulus (increasing money supply ) or sometimes by providing financial stimulus (reduction in personal income tax rates)

What Cause Skewflation 

Skewflation is caused by the rising cost of living (inflation) coupled with falling asset prices such as houses (deflation).

Skewflation Example

India’s economy experienced skewflation during the year 2010–2011.

India’s Economic survey 2010-11 said:

The year 2010-11 has been a year of more than one such skewflationary episode. At the beginning of the calendar year 2010 and even in the first months of the fiscal year 2010-11 inflation was high for food grains, sugar, and pulses. During the course of the year, inflation in these commodities stabilized, but by November there was another spike in prices of another set of commodities, led by onions, cabbage, milk, and a couple of other products

The Survey highlights the skewed pattern of inflation in India. Food prices rose sharply (17.8% for the week ended February 13, lower than the 19.5% reached early January, but still unacceptably high), but other prices did not. Similarly, the retail price increased several times as high as the wholesale price rise.

However, other items stayed just about the level or even decreasing in cost, which was a relief if inflation can stay at these levels.