Inflation

• Milton Friedman, “Inflation is always a

monetary phenomenon and can be produced
only by a more rapid increase in the quality of
many then output”.

• In other words, too much money chasing too

many goods.
• In the words of Shapiro, “Inflation is a
persistent and appreciable rise in the general
price level”.

• Features of Inflation:
– Rise in General Price level.
– Price rise is continuous and appreciable.
– Primary cause is excessive surplus of money.
 Types of Inflation

• On the basis of speed of rise in General Price

Level

• On the basis of Cause

 On the basis of speed of rise in General Price Level

• Creeping Inflation
• Less than 2-3% increase in General price level in a year

• Walking Inflation
• 3-6% increase in General price level in a year

• Running Inflation
• 10-20% increase in General price level in a year

• Hyper Inflation
• More than 20-100% increase in General price level in a year
 On the basis of Cause
• Cost Push Inflation
– When rise in the cost of production is the prime
cause responsible for increasing general price
level.
– Reasons of cost push inflation:
• Rise in wages. E.g. 6th Pay Commission
• Rise in price of Imported inputs. E.g. Oil prices
• Rise in prices of raw material.
• Higher profit margin by the producer
Cost Push Inflation
• Demand Pull Inflation
– Too much money chasing too few goods
– Demand exceeds supply

– Causes of Demand Pull inflation

• Excessive money income
• Demonstration effect
• Conspicuous consumption
• Rise in standard of living
Demand Pull Inflation
Thank You