‎MoSPI - nodal agency for measuring inflation

‎Facts
‎India - both WPI and CPI

‎ enefits
B
‎1. Debtors benefit
‎2. lowers (deposit) interest rate 1‎ . Too much money chasing too few goods
‎3. Exports increase as currency depreciates - ‎2. Overall output of economy does not fall
‎become competitive
‎4. Nominal wages increase
‎Demand Pull ‎ ossible causes = Increased MS - how?
P
‎5. people in business gain profits
‎6. Savings, inv. and employment rise in short ‎1. Deficit financing & fiscal stimulus.
‎term ‎2. Depreciation of rupee and Increase in
‎ ffects of Increasing Inflation (MS
E ‎Forex reserve
‎3. Lower interest rates = more loans
‎ isadv.
D ‎high)
‎4. Rising real wages.
‎1. Lenders suffer as real PP decline
‎2. Real wages decrease and fall in real value
‎of savings 1‎ . rising cost of inputs
‎3. decline in competitiveness - Less inv. as ‎Cost Push ‎2. increase in prices, output level of
‎uncertainty in economy ‎economy also falls.
‎4. PP of rupee decline -> Imports costlier
‎due to depreciation of currency ‎Monetary ‎deficit financing - sustained increase in MS
‎5. Fixed income people - pensioners and
‎salaried suffer
‎ irms pass higher labor costs to customers as
F
‎Based on causes ‎Built In ‎higher prices -> vicious cycle of higher
‎price - higher labor cost - higher price.
1‎ . Z - most optimistic, eco quickly rise after
‎crash (more than people's income, their 1‎ . Total inflation
‎ability to spend restricted - very short) ‎2. May not be accurate inflationary trend
‎2. V - eco quickly recoups (incomes and jobs ‎since sector-specific spikes unlikely to
‎not permanently lost) ‎persist.
‎3. U (struggles at low before rising to usual) ‎Headline/Core
‎4. W (Double Dip) ‎Types of Economic Recovery
‎5. J (unrealistic - from low to much higher) 1‎ . Excludes primary articles - food and fuel
‎6. K (b/w V and L depending on type of ‎because volatility/short term fluctuations.
‎employment - people at top prosper while ‎2. More accurate
‎down below in debt)
‎7. L (Worst case scenario - usually after ‎Profit induced ‎Monopoly based
‎recession - low levels for long)

‎Structural ‎Developing and LDCs

1‎ . Global Eco Prospects ‎Types 1‎ . Creeping

‎World Bank
‎2. World Dev Report ‎2. Walking - Central banks concerned + may
‎turn into chronic inflation over time
1‎ . World Eco Outlook ‎Based on speed ‎3. Running
‎IMF ‎4. Galloping - Challenging to bring/u control
‎2. Global Financial Stability Report
‎Reports and Index ‎5. Hyper - Can lead to collapse of currency
‎and eco crisis
‎Financial Stability Report ‎RBI
‎Inflation
‎ kewed rise in price of some items. E.g.
S
1‎ . World Investment report ‎Skewflation
‎UNCTAD ‎Seasonal rise in onions.
‎2. Trade and Dev. Report

‎ ising prices with falling growth and

R
‎Stagflation
‎employment (can lead to recession)
1‎ . Bulk prices - may include some taxes and
‎distribution costs up to stage of wholesale
‎Disinflation ‎Reduction in rate of inflation
‎transactions.
‎2. Most widely used
‎3. Goods ‎Others ‎Deflation ‎General fall in the level of prices.
‎4. Weight of an item - Net traded value
‎Multiple counting bias inherent s‎ ustained, long-term downturn in economic
‎Depression
‎WPI (OEA, MoCI) ‎activity.
‎ anufactured products (64%) > Primary
M
‎Articles (23%) > Fuel and Power (13%) 1‎ . Stimulating economy after a period of
‎economic slowdown or contraction.
‎Subtopic 1 ‎Reflation ‎2. Also called structural inflation - occurs
‎when supply falls drastically and demand
‎remains at same level.
‎Retail prices

1‎ . RBI adopted CPI (R+U)

‎2. Goods and services 1‎ . Gov. spending > NI
‎2. Over employment
‎Base year - 2011-12 ‎Inflation Gap ‎3. Need for restrictive fiscal and monetary
‎Food and Beverage 45.86 ‎CPI
‎policies, less gov spending, more taxes and
‎higher interest rates.
1‎ . CPI for Industrial Workers (IW) - MoLE ->
‎Base year from 2001 to 2016 1‎ . Gov. spending < NI
‎2. CPI for Agricultural Labourer (AL) - MoLE ‎2. Under employment
‎3. CPI-AL and Rural workers (CPI-RL) base ‎Deflationary Gap ‎3. Need for expansionary fiscal and
‎year is 1986-87. ‎monetary Policies, More government
‎4. CPI for Rural Labourer (RL) - MoLE ‎spending, less taxes, lower interest rates.
‎5. CPI (R/U/Combined) - NSO, MoSPI.
‎Measurement of Inflation
‎ reates excess demand while supply fails to
c
‎Manufacturing Sector ‎Bottleneck Inflation
‎match

I‎ndex of 8 Core Industries/w 40.27% IIP - ‎Inflation Tax ‎Price rise, wages increase, taxes increase
‎Refinery > Electricity > Steel > Coal > Crude
‎IIP (CSO, MOSPI)
‎Oil > Natural Gas > Cement> Fertilisers (RESC
‎CNCF) ‎ onus brought by inflation to borrowers. Real
B
‎Interest Rate (nominal IR adjusted to
‎Inflation Premium
‎inflation) << Nominal interest rate (charged
‎ anufacturing (77.63%) > Mining (14.37%) >
M ‎on lending).
‎Electricity (7.9%)

‎ age-price spiral i.e. when wages press

W
1‎ . Output PPI or Input PPI ‎Key Terms ‎Inflation Spiral
‎prices up and prices pull wages down.
‎2. GnS
‎ roducer Price Index (monthly - Labour
P
‎3. excludes indirect taxes
‎Bureau) ‎ rices higher in previous year, more farmers
P
‎4. Weights derived from supply
‎5. Removes multiple counting bias ‎sow pulses in current year leading to over-
‎production and subsequent decline in prices.
‎ obweb Phenomena
C
‎Lower prices in current year disincentive
‎ hat today’s basket of commodities would
w ‎(pulses market)
‎Paasche Index ‎farmers from growing crops in next cropping
‎have cost @ base year. ‎season, leading to underproduction and
‎subsequent increase in prices.
‎Service Price Index (OEA) ‎Others
1‎ . GDP price deflator = (nominal GDP/real
t‎ racks the international prices of the most ‎GDP) x 100
‎Food Price Index (FAO) ‎2. Reflects the extent to which the increase
‎commonly traded food commodities ‎GDP Deflator/ Implicit Price Deflator
‎in the GDP has happened on account of
‎higher prices rather than an increase in
‎Freight rates for bulk commodities movement ‎Baltic Dry Index (London) ‎output.

I‎nverse relationship between unemployment

‎Phillips Curve
‎and inflation.