Inflation- Mayur Khatri (2027)

Contents : A glimpse of what is to come

•Meaning and Definitions

•Types of Inflation

•Theories and causes of Inflation

•Effects of Inflation

•Control Measures

•Present Scenario

What is Inflation?Definitions : “Inflation is an increase in the quantity of purchasing power.”– Gregory

Inflation is the stage of too much money chasing too few goods.”-- Coulbourn

Meaning :

Inflation is considered a global phenomenon. It takes place because of rapidly rising prices of goods and services, resulting in the decline of the value of money.

The rate at which the general level of prices for goods and services is rising, and, subsequently, purchasing power is falling.

Types of Inflation

-Creeping Inflation -Walking or trotting Inflation-Running Inflation-Galloping Inflation-Hyper Inflation

Theories and Causes of Inflation

The main cause of inflation is the increase in the demand of goods and services and at the same time decrease in the supply of goods and services.

There are two theories related to the causes of inflation:

Demand-pull (when there is excess demand), and

Cost-push (when costs rise)

Theories and Causes of Inflation

Demand Pull Inflation –

This occurs when there is excess aggregate demand in the economy (overall) or in a specific market or industry. Businesses respond to high demand by raising prices to increase their profit margin

Theories and Causes of Inflation

Cost – push Inflation :This occurs when costs of production or operation are increasing.

Cost Push inflation is mainly caused due to the following factors:

· increase in wages.

· increase in cost of raw materials

· increased cost of imported components (import-push inflation)

Effects of Inflation

Effect depends on the speed of inflation and the nature of the economy.

Rising prices of imports Lowers national saving Redistribution of Income & Wealth Collapse of Monetary system Adverse impact socially and politically Discourages Investment & savings Higher Interest / Income tax rates

Control Measures

Monetary Policy:Monetary Policy essentially implies the policy followed by financial institutions.

High interest rates and slow growth of the money supply are the traditional ways through which central banks fight or prevent inflation.

Fiscal MeasuresReduction in unnecessary expenditure.

Increase in Taxes.

Increase in savings

Adopt Surplus Budget(collecting more revenue and spending less).

Stop Repayment of Public Debt until inflationary pressures are controlled.

Other Measures

Present Scenario

The inflation rate in India was recorded at 6.46 % in September-2013.

From 1969 until 2013, India Inflation Rate averaged 7.7% Highest 34.7%September -1974 Lowest-11.3 % in May -1976The average inflation of India in 2013: 11.04 %

COUNTRY CATEGORY DATES ACTUAL HIGHEST LOWEST UNIT FREQUENCY

INDIA INFLATION RATE

1969 – 2013 6.46 34.68 -11.31 PERCENT MONTHLY

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