04/11/2023 07:59 PM 1

Inflation in india

Inflation in india

Ghanshyam iilm gurgaon

04/11/2023 07:59 PMGhanshyam iilm gurgaon 2

INFLATION “Inflation is nothing more than a sharp

upward rise in price level.” Too much money chasing, too few

goods.” Inflation is a state in which the value of

money is falling i.e. price are rising.”

04/11/2023 07:59 PMGhanshyam iilm gurgaon 3

KINDS OF INFLATION

On the basis of rate of inflation On the basis of degree of control On the basis of causes Others

04/11/2023 07:59 PMGhanshyam iilm gurgaon 4

CAUSES OF INFLATION

Demand pull inflation Cost push inflation

04/11/2023 07:59 PMGhanshyam iilm gurgaon 5

Demand-pull Inflation

Ep

Ep1

D

D1

S

Eq Eq1

04/11/2023 08:00 PMGhanshyam iilm gurgaon 6

Cost-push Inflation

Ep1

E

E1

SS1

D

04/11/2023 08:00 PMGhanshyam iilm gurgaon 7

HOW TO CONTROL INFLATION

Monetary Measures Fiscal Measures Other Measures

04/11/2023 08:00 PMGhanshyam iilm gurgaon 8

Monetary Measures

Credit Control Demonetization of Currency Issue of New Currency

04/11/2023 08:00 PMGhanshyam iilm gurgaon 9

Fiscal Measures Reduction in Unnecessary Expenditure Increase in Taxes Increase in Savings Surplus Budgets Public Debt

04/11/2023 08:00 PMGhanshyam iilm gurgaon 10

OTHER MEASURES To Increase Production Rational Wage Policy Price Control

04/11/2023 08:00 PMGhanshyam iilm gurgaon 11

How is it Measured?

Consumer Price Index Wholesale Price Index

04/11/2023 08:00 PMGhanshyam iilm gurgaon 12

Consumer Price Index

CPI is a measure estimating the average price of consumer goods and services purchased by households.

CPI measures a price change for a constant market basket of goods and services from one period to the next within the same area (city, region, or nation).

It is a price index determined by measuring the price of a standard group of goods meant to represent the typical market basket of a typical urban consumer. The percent change in the CPI is a measure estimating inflation.

04/11/2023 08:00 PMGhanshyam iilm gurgaon 13

Wholesale Price Index

WPI was published in 1902,and was one of the economic indicators available to policy makers until it was replaced by most developed countries by the CPI market. index in the 1970.

WPI is the index that is used to measure the change in the average price level of goods traded in wholesale market.

Some countries (like India and The Philippines) use WPI changes as a central measure of inflation. However, India and the United States now report a producer price index instead.

04/11/2023 08:00 PMGhanshyam iilm gurgaon 14

Problems with WPI

In present day service sector plays a key role in Indian economy. Consumers are spending loads of money on services like education and health. And these services are not incorpated in calculation of WPI.

WPI measures general level of price changes either at level of wholesaler or at the producer and does not take into account the retail margins. Therefore we see here that WPI does give the true picture of inflation.

04/11/2023 08:00 PMGhanshyam iilm gurgaon 15

Problems with WPI WPI is supposed to measure impact of prices on

business. “But we use it to measure the impact on consumers. Many commodities not consumed by consumers get calculated in the index.

04/11/2023 08:00 PMGhanshyam iilm gurgaon 16

Weight edge to CPI & WPI

04/11/2023 08:00 PMGhanshyam iilm gurgaon 17

Inflation rate

PI for a certain year - PI for a comparative year X 100

PI for a comparative year

04/11/2023 08:00 PMGhanshyam iilm gurgaon 18

2006-2007 2007-2008

Inflation 7.8 12.0

Food inflation 10.3 17.6

Non-food inflation 6.2 6.8

INFLATION RATES

04/11/2023 08:00 PMGhanshyam iilm gurgaon 19

EFFECTS OF INFLATION

They add inefficiencies in the market, and make it difficult for companies to budget or plan long-term.

Uncertainty about the future purchasing power of money discourages investment and saving.

04/11/2023 08:00 PMGhanshyam iilm gurgaon 20

EFFECTS OF INFLATION

There can also be negative impacts to trade from an increased instability in currency exchange prices caused by unpredictable inflation.

Higher income tax rates. Inflation rate in the economy is higher

than rates in other countries; this will increase imports and reduce exports, leading to a deficit in the balance of trade.

04/11/2023 08:00 PMGhanshyam iilm gurgaon 21

EXAMPLE

Increase in the price of wheat Increase in the price of world oil Increase in the price of rice Increase in the price of CNG

04/11/2023 08:00 PMGhanshyam iilm gurgaon 22

T