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Inflation Explained

Why is everything getting more expensive? Kiran and Debkanya follow the chain from a blocked Strait of Hormuz and a US interest rate hike to a weaker rupee, pricier oil and rising prices in Indian kitchens.

Inflation Explained

Inflation is when prices across an economy keep rising, so the same amount of money buys less over time. In India in 2026, prices have been rising at about 4.8% a year, driven by a chain of events that starts with a blocked shipping route near Iran and ends in Indian kitchens.

What is inflation?

Inflation is the general rise in prices over time, across an economy, not just for one product. When inflation is running at 4.8% a year, something that cost Rs 100 a year ago now costs Rs 104.80. Nothing about the item changed; the same amount of money simply buys a little less than it used to.

Inflation is usually measured as a percentage change in the average price of a wide basket of everyday goods and services, from food and fuel to rent and transport. A small, steady amount of inflation, roughly 4 to 6% a year, is considered normal and even healthy for an economy. It becomes a problem when prices rise faster than people's incomes, or when the rate of increase itself keeps climbing.

Why do prices go up? Demand and supply

Economists explain most price changes using demand and supply. When there is plenty of something, people can buy as much as they want, and prices stay low. When there suddenly is not enough of something, people are willing to pay more to get it, so the price rises. The scarcer something is, the higher its price tends to go.

India buys a large share of its oil, electronics, and other goods from other countries. When those goods become more expensive to produce or ship elsewhere in the world, they become more expensive in India too.

Hear it from Takaro: Why are diamonds so expensive? Because there are very few of them, and they're hard to get to - you have to dig deep. When something is scarce, its price goes up. The same thing happens with oil. (Kiran, on the podcast)

Key fact: Inflation isn't automatically a bad sign. The Reserve Bank of India treats a small, steady rate, around 4-6%, as healthy. The concern in 2026 is that prices could keep climbing beyond that range.

Why is oil getting more expensive? The Strait of Hormuz

The Strait of Hormuz is a narrow sea passage near Iran connecting the Gulf to the open ocean. A very large share of the world's oil, including much of what India imports, travels by ship through this one channel.

A war between Iran and the United States led to the strait being blocked, sharply cutting the amount of oil able to pass through. With less oil reaching global markets, the price of oil rose worldwide - and in India, petrol now costs more than Rs 100 a litre.

How did a US interest rate decision affect prices in India?

A central bank is a country's main bank, responsible for controlling how much money flows through its economy. India's central bank is the Reserve Bank of India (RBI); America's is the Federal Reserve. An interest rate is the price of borrowing money, expressed as a percentage: if you borrow Rs 100 at 5% interest, you pay back Rs 105 a year later.

In 2026, the US Federal Reserve raised interest rates for the first time in three years, a move meant to cool down prices that were rising fast in America. Raising rates made borrowing and holding US dollars more attractive, which weakened the Indian rupee against the dollar.

Hear it from Takaro: Interest rates work like a thermostat. When the economy gets too hot and prices rise too fast, the central bank turns the dial to cool it down. When it gets too cool, it turns up the heat. (from the episode)

Did you know? The RBI is also the only institution allowed to print India's currency, from Rs 10 notes to Rs 100 notes, and it replaces old, torn notes with fresh ones.

Why does a weaker rupee make oil even more expensive?

Oil is priced and traded in US dollars worldwide. When India buys oil, it has to pay in dollars, so the exchange rate - how many rupees it takes to buy one US dollar - directly affects the price India pays.

In 2026, one US dollar costs roughly Rs 96, up from about Rs 63-64 a few years earlier. The effect compounds: before the Iran-US conflict, a barrel of oil cost about $70 when the dollar was worth roughly Rs 90, working out to about Rs 6,300 a barrel. With oil now at about $100 a barrel and the dollar at Rs 96, that same barrel costs roughly Rs 9,600. Oil got more expensive in dollar terms, and the rupee lost value at the same time - a double effect that pushes Indian prices up from two directions at once.

Everything is connected: When oil and cooking gas (LPG) cost more, cooking food costs more, travel and flights cost more, and the effect can spread further, into hospital visits, school fees, and clothes.

What is the RBI doing about it?

Like the US Federal Reserve, the RBI can use interest rates to influence how much money flows into banks and, from there, into people's pockets. As of this episode, the RBI has chosen not to change rates, treating the current inflation as temporary and waiting to see how the situation develops - with another review expected in a few months.

The whole chain: A war between Iran and the US blocks the Strait of Hormuz, so less oil reaches global markets and oil prices rise. The US Federal Reserve raises interest rates, so the Indian rupee weakens against the dollar. India pays more for oil in rupee terms on two fronts at once, so everyday prices rise in India. That chain, start to finish, is this round of inflation.

Key vocabulary

Inflation - When prices in general keep rising over time, so the same amount of money buys less.
Demand and supply - The idea that scarce, high-demand goods become more expensive, while plentiful goods stay cheap.
Central bank - A country's main bank that controls the flow of money, such as the Reserve Bank of India or the US Federal Reserve.
Interest rate - The price of borrowing money, shown as a percentage of the amount borrowed.
Exchange rate - How much of one currency it takes to buy another, such as how many rupees equal one US dollar.
Barrel - The standard unit used to measure and price oil worldwide.
LPG - Liquefied petroleum gas, the cooking gas used in many Indian kitchens.
Strait of Hormuz - A narrow sea passage near Iran connecting the Gulf to the ocean, through which much of the world's oil travels.

Frequently asked questions

What is inflation, in simple terms?

Inflation is when prices across an economy rise over time, so the same amount of money buys less than it used to. If inflation is 8.4% in a year, something that cost Rs 100 now costs Rs 108.40.

Why is inflation happening in India right now?

A war between Iran and the US blocked the Strait of Hormuz, a key route for global oil shipments, pushing oil prices up. At the same time, the US Federal Reserve raised interest rates, weakening the Indian rupee against the dollar. Since India buys oil in dollars, both effects combined to raise fuel and everyday prices in India.

What is the Strait of Hormuz, and why does it matter for oil prices?

It's a narrow sea passage near Iran connecting the Gulf to the open ocean, through which a large share of the world's oil is shipped. When it's blocked or restricted, global oil supply drops and prices rise.

How do US interest rate decisions affect prices in India?

When the US Federal Reserve raises interest rates, it tends to strengthen the US dollar and weaken other currencies, including the Indian rupee. Since oil and many imports are priced in dollars, a weaker rupee means India has to pay more rupees for the same goods.

Is inflation always a bad thing?

No. A small, steady rate of inflation, around 4-6% a year, is considered normal and healthy by the Reserve Bank of India. Problems arise when inflation rises well above that range or keeps climbing unpredictably.

Related episodes

BRICS Explained - how a group of major economies, including India, is reshaping global trade and finance.
LPG and the Iran Shipping Squeeze - a closer look at how Gulf shipping disruptions affect cooking gas prices in India.
How Tariffs Work Across Countries - another force that changes the price of imported goods.

What You'll Learn

1. Inflation means things get more expensive: at 8.4%, something that cost Rs 100 now costs Rs 108.40.
2. When the Strait of Hormuz was blocked, less oil reached India, and like diamonds, scarce things cost more.
3. The US Federal Reserve raised interest rates for the first time in three years, and the rupee got weaker against the dollar.
4. India pays for oil in dollars, so a barrel that cost Rs 6,300 now costs Rs 9,600.
5. The RBI is keeping things unchanged for now, treating this as temporary and waiting to see what happens.

Key Vocabulary

- Inflation — When prices in general keep rising over time, so the same amount of money buys less.
- Demand and supply — The idea that when something is scarce and many people want it, its price goes up, and when there is plenty of it, the price stays low.
- Central bank — A country's main bank that controls the flow of money, like the Reserve Bank of India or America's Federal Reserve.
- Interest rate — The price of borrowing money, shown as a percentage of the amount borrowed.
- Exchange rate — How much of one currency you need to buy another, such as how many rupees it takes to buy one US dollar.
- Barrel — The standard unit used to measure and price oil around the world.
- LPG — Liquefied petroleum gas, the cooking gas many Indian families use in their kitchens.
- Strait of Hormuz — A narrow sea passage near Iran that connects the Gulf to the ocean, through which a lot of the world's oil travels.

Classroom Lesson Plan

Discussion questions, a hands-on classroom activity, and grade-band standards alignment — grades 4–9.

Discussion questions

A — If you ran the government
Educator prompt: Kiran asks listeners: if you ran the government, what would you do? Would you cut petrol prices to keep them cheap? Would you tax something else instead? Ask students to pick a choice and explain who it helps and who might end up paying for it.

B — Keep rates the same, or change them?
Educator prompt: The Federal Reserve raised interest rates to cool down prices in America, while the RBI has decided to keep things as they are and wait about three months. Ask students: if you were in charge of the RBI, would you keep interest rates the same or change them? What would you be worried about in each case?

C — Who feels inflation the most?
Educator prompt: Debkanya lists how rising prices spread: food, travel, flights, and maybe hospital visits, school fees and clothes. Ask students which families they think are hurt most when these things get more expensive, and why a price rise that is small for one family can be big for another.

D — Everything is connected
Educator prompt: The episode shows how a blocked strait near Iran and a decision by 12 people in Washington both reach Indian kitchens. Ask students whether being so connected to the rest of the world is mostly good or mostly risky for India, and what India could do to depend less on imported oil.

[00:00:05] Debkanya: Thank you so much, Adira, for starting off this episode.
[00:00:08] Kiran: And this could be you as well. If you wanna give in your voice note for Mics, Camera, Action, the next episode could have you
[00:00:17] Debkanya: Yes, you could start off every episode, so do send us your voice notes. Without further ado though, we are going to talk about something that is a little complicated if you ask me, but Kiran has promised he's going to make this topic really, really easy to understand. Because this is an important topic.
[00:00:34] Debkanya: Kiran, over to you
[00:00:36] Kiran: It's called inflation. How many of you have actually heard of inflation? Basically, in simplest of terms, inflation is when things become more expensive. One of the reasons we're talking about inflation today is things are starting to get more expensive in India, right? Things like ordering out on Swiggy or Zomato or going out to a restaurant and ordering food, it's actually getting a little bit more expensive.
[00:01:01] Kiran: Your vegetables are getting more expensive and your fruits are getting more expensive, and that is actually inflation. And there are many reasons why this happens, right? In India inflation grows by about eight point four percent in a year. Now, these are numbers you don't need to necessarily know, but what it basically means is if something grew by eight point four percent, that means if you were paying hundred rupees before, for that same thing, you will now pay a hundred and eight point four rupees, right?
[00:01:31] Kiran: So fundamentally what inflation basically means.
[00:01:35] Debkanya: And you know, when things get more expensive, becomes harder and harder, right, for us to go out and do all these things. But like you were saying, there are reasons for inflation. One of the big reasons for inflation, of course, is we buy a lot of things from different parts of the world. Remember, we've spoken about trade.
[00:01:53] Debkanya: So we buy a lot of things. When things get more expensive there, they get more expensive for us. And there has been one big thing that we've spoken about in previous episodes that happened in the world, which has made oil or fuel more expensive, and we're talking about the Strait of Hormuz.
[00:02:10] Debkanya: Remember that place? You can go back to your map. You can find the Strait of Hormuz. You can see, you can spot where Iran is. You can see where the Gulf is, or where the Gulf Peninsula is, and you will be able to see the Strait of Hormuz. Now, a lot of oil travels in ships through that place and goes to different parts of the world.
[00:02:29] Debkanya: A large part of it comes to India. Now, there's been issues there. Not as much oil has been able to travel
[00:02:37] Kiran: Yeah.
[00:02:37] Debkanya: as before
[00:02:38] Kiran: And so that's what in economics you would call demand and supply, right? If there is enough supply, then, you have the option to buy a lot of it. if suddenly there's not enough supply, people are willing to pay a little bit more for that particular item. And if you think about it, not in the context of inflation, but if you think about it in the context of diamonds, the reason diamonds are so expensive in general is because there's very little of
[00:03:07] Debkanya: Very few
[00:03:07] Kiran: Yeah very few diamonds
[00:03:09] Debkanya: And they're so hard to get to because you really have to dig deep
[00:03:13] Kiran: So the more something is limited, the higher the price is. And so that's what's basically happening with oil, right? When less oil travels and comes to India, the price of oil goes up. And so today you're paying above 100 rupees per liter in terms of petrol price, right? But inflation is not all bad and a little inflation is actually totally fine. In
[00:03:38] Debkanya: Normal. Yeah
[00:03:39] Kiran: Bank of India basically looks at inflation, which is between 4, 4, 5, 6% is totally fine. But what is happening now is there is indication that it's going to potentially keep going up, and costs and prices will actually keep going up, and that's actually a big concern. other than the oil impact, there's also another very, very important impact to Indian currency and Indian rupee, which is the US dollar. the world basically everything around the US dollar. It is the most powerful country in the world and, therefore everything is around the US dollar. So it's not uncommon and unusual. So other than oil, there was another thing that actually changed over the last week or so, right? last week, there were a group of 12 people who met in Washington,
[00:04:36] Debkanya: Hmm
[00:04:37] Kiran: they basically made a decision that moved money all over the world. these 12 people are part of what's called the Federal Reserve in the US. It's America's central bank. The central bank in a country, India's central bank is Reserve Bank of India, the US, it's Federal Reserve. The central bank of a country basically controls the economy, controls, the money flow. Is there more money going into the system? Is there less money going into the system?
[00:05:09] Kiran: Very simple, right?
[00:05:09] Debkanya: If, in fact, the RBI,
[00:05:12] Debkanya: I mean, while their job is to be like the head coach that actually monitors how all the banks in the country work, so making sure that the money is safe, the RBI is also the only place that al- that is allowed to print money, to actually make the paper money that we use, the 10 rupee notes, the,
[00:05:28] Debkanya: 100 rupee notes.
[00:05:30] Debkanya: The RBI is responsible for that. If you have an old, if old torn money, the RBI makes sure that you have fresh, clean notes, right? Ready for you to use. So that's one of the things the RBI does. It controls and makes the money that we use safe
[00:05:43] Kiran: Yeah. And so coming back to, the Federal Reserve in the US and what happened last week, they actually raised interest rates.
[00:05:53] Debkanya: Hmm
[00:05:53] Kiran: we'll get into what interest rates are, but what's, surprising about this or why it shook the world is because it was the first time the interest rates were raised in three years.
[00:06:02] Kiran: So three years it hadn't changed, suddenly they raised it. Now, interest rates. Interest rate is when I give you 100 rupees, Debbie I will say when you pay me back, you have to pay me back 105 rupees, because
[00:06:18] Debkanya: Mm-hmm.
[00:06:18] Kiran: when you needed money, I gave it to you, but will take a year or so to give it back to me, and therefore I'm gonna charge you 5%
[00:06:27] Debkanya: You are not a true friend, Kiran.
[00:06:30] Kiran: A true friend keeps it at 5%, banks keep it at 8, 9, 10%, so yeah.
[00:06:36] Debkanya: Okay, possible.
[00:06:37] Kiran: so they raised the interest rate. what does that mean? It becomes more expensive for me to borrow money, Now, you came to me , and you were gonna get it at 5%, someone else comes in and says, "Hey, it can no longer be 5%, it has to be 7%." So 7-- It has to be ₹107 that you return to me. Suddenly it becomes tougher for you because that seven rupees is quite significant when you think of volume, right? So the Federal Reserve in the US did this primarily to try and reduce inflation And like a thermostat, right? Where when it starts getting a little bit too hot, you try and cool it down. When it starts getting too cool, you try and increase the heat. So pretty much exactly what the American Federal Reserve did, because in America, the prices are rising much faster than in India. They wanted to try and reduce that price rise or the inflation, and so they increased the interest rates. what would be good right now is if you take a pause maybe go and look at what the current US dollar to Indian rupee exchange rate is, right? That means how much do you have to pay in Indian rupees to get $1?
[00:08:05] Debkanya: Cool. So now while you do that, I'm sure, I mean, if some of you have not been able to go and find out what it is I think it right now is 96 rupees to the dollar, which is very, very high.
[00:08:17] Debkanya: mean, and I-- the reason I tell you that this is high is because there was a time when the rupee was, 63, 64 rupees to the dollar, which means if you got something for $1 in the US, to buy the same thing, you would pay 64 rupees. Now you pay 96 rupees for that same thing, right?
[00:08:33] Debkanya: So it's, it's a lot. It's a huge difference
[00:08:36] Kiran: close to 100 rupees.
[00:08:38] Debkanya: Yeah
[00:08:38] Kiran: it keeps going up and down quite significantly, and that's why, the conversion rate is very important because that's how it impacts India. Now, when we're buying oil, I told you everyone measures everything around the US dollar, suddenly for that same barrel of oil that we're buying, we actually have to pay more, right?
[00:09:02] Kiran: So it starts getting more and more expensive. And so what happens is we buy about 85% of our oil from other countries, from other parts of the world. We buy about 60% of our LPG, which we use in our kitchens, comes from, the Hormuz Strait. if that's the case, suddenly all of this is getting expensive because the US dollar to Indian rupee rate is getting more expensive, right? And so which is why when you cook something, the food gets expensive, which is why when you travel somewhere, it is now more expensive. Prices of flights are going up. And so that's basically the entire inflation cycle being explained very simply
[00:09:47] Kiran: Actually give you a quick comparison of what it was and what it is today. Before the war started, before the Iran-US war started and the Strait of Hormuz, was blocked and all of that, one barrel of oil was about $70, And at that point it was about 90 rupees per dollar.
[00:10:06] Debkanya: So do the multiplication. Yeah
[00:10:08] Kiran: This is good way to practice your mathematics and multiplication. Now, from $70 a barrel of oil it has gone up to $100 of $100 a barrel. And like Debbie said, the dollar to the rupee is 96.
[00:10:26] Kiran: So if you did the math earlier, it went from 6,300 rupees a barrel to now 9,600 rupees in the same year. That is a huge jump, right? Oil is becoming more expensive because it went from 70 to 100, and the USD to India is becoming weaker, so it went from, 90 rupees to 96 rupees, and that's where inflation comes from.
[00:10:51] Kiran: When you start understanding all of these patterns, that's why things are getting more expensive. So tomorrow, if a friend of yours or your parent or your uncle talks about, "Oh, my God, things are getting expensive," you actually know why. You can explain this entire oil barrel analogy and that's it.
[00:11:08] Debkanya: So obviously this is hurting a lot of people in India a lot because, you know, like you said, food is getting more expensive, travel is getting more expensive. Slowly many other things might get more expensive, right? Going to the hospital might get more expensive. School fees might go up, right? You know, simple things like, okay, even shopping for clothes could get more expensive.
[00:11:28] Debkanya: Everything is connected. So what can the RBI do about this, Kiran? Because at the end of the day, we know that the RBI's job for India is to ensure that we are protected as much as possible, that the rupee is protected as much as possible. And, you know, they put rules and laws in place to make sure that the rupee doesn't suffer too much.
[00:11:47] Debkanya: So what can happen there?
[00:11:49] Kiran: It. So like you said, the RBI is telling each bank how much they can get. So what it does is it basically uses these interest rates, just like the Federal Reserve, define how much of money goes out into the system into the banks, and therefore into our own pockets as well. So RBI basically uses the banks to define where the economy will be. But to make it very simple, what they've done for now is they are not changing anything. They have basically kept it as is because they're thinking of this as something temporary. They're hoping for, things to change.
[00:12:25] Kiran: India is in a pretty good position. It has a good amount of money in its banks, so it's not
[00:12:32] Debkanya: Thank you
[00:12:33] Kiran: trying to survive right now. You can still keep going as is. So I think they're gonna keep
[00:12:38] Kiran: They're gonna maintain the current state for a while. And I think we'll have to wait another three months or so to see what happens.
[00:12:46] Kiran: So for now, I think it is continue as normal, nothing changes. And maybe an exercise y'all could do with your friends with your classmates is if you ran the government, what would you do? Would you cut Would you cut petrol prices? Would you keep it cheap? Would you tax something else?
[00:13:06] Kiran: What would you do? That's a good discussion to have, right? And, let us know. I would love to know what you think. Are you going to keep the interest rates as is? Are you going to make petrol cheaper? Are you gonna make it expensive? What are you gonna do?
[00:13:20] Debkanya: Yeah, there's so many, so many decisions that have to be taken constantly to keep a country running well, right? That to such a large country with so many people. So it's not, not an easy job, not an easy job at all. But quickly, just to recap what we spoke about. There's been a war which is ongoing right now.
[00:13:38] Debkanya: There are issues between Iran and the US. The Strait of Hormuz therefore is blocked, which means less oil is getting through. When less oil gets through, it gets more expensive. Meanwhile, in the US, the Federal Bank or the Fed rate has gone up. There's been a hike there which means the rupee has become weaker, which means everything that we used to spend rupees on is, you know, more expensive for us.
[00:14:01] Debkanya: And there was a double trouble with how India buys oil. We buy in dollars. So all of that is also more expensive. So generally, that's the situation. That's what inflation is. That's what we're in the middle of. It could be temporary. We'll have to wait and watch. But that brings us to a much easier part of the whole episode now, which is our quiz question of this episode.
[00:14:27] Debkanya: The quiz question this week is going to be why? And this answer has been given by Kiran earlier. Why does a weaker rupee make oil more expensive for India?
[00:14:44] Kiran: Maybe you have to do
[00:14:45] Debkanya: Yeah
[00:14:45] Kiran: over here and send us the answer.
[00:14:48] Debkanya: There is no math. There is no math. There's a very specific reason why a weaker rupee makes oil more expensive for India. Discuss it with your friends, discuss it with your parents, discuss it with the adults around you, maybe even your grandparents, and ask them why does a rupee make oil pricier for India? And maybe you know the answer and they don't, and won't that be fun
[00:15:08] Kiran: Ooh, that would be fun. as usual, go into our website and send us the answer. There is a form now, and there are, multiple quizzes over there. So go in and submit it through our website. And one lucky winner will basically picked, and we will connect with you, and we will send you something very special. Doesn't need to be the first person who sends it in, doesn't need to be the fifth time you're sending it, first time you're sending it, doesn't matter. Just go in and send in your answers on our website, takaropodcast.com, and you will get something special from us.
[00:15:48] Kiran: Until next week, it's
[00:15:50] Debkanya: It's time for us to say bye-bye