Inflation & its Classification

Anju Sara Eapen

Merry Eapen
 CONTENTS

Introduction
Causes of inflation
Effects of inflation
Types of inflation
Inflation trend in India
Calculation of inflation
Conclusion
 INTRODUCTION
The general increase in the price for goods in
an economy is called inflation.

Inflation is an important concept both in the

study of economics and in real life
applications because it affects peoples
purchasing power.

Inflation is most commonly measured by

Consumer Price Index(CPI), and Producer
Price Index(PPI).
 Variations on inflation
Deflation is when the general level of prices is
falling. This is the opposite of inflation.

Hyperinflation is unusually rapid inflation. In extreme

cases, this can lead to the breakdown of a nation's
monetary system.

Stagflation is the combination of high unemployment

and economic stagnation with inflation.
 Classifications
Demand Pull Inflation:
Inflation initiated by an increase in aggregate
demand.
Cost Push / Supply Side Inflation: Inflation
caused by increase in costs.
Structural Inflation:
Inflation that occurs because a government
pursues an excessively loose monetary policy.
 Demand Pull Inflation
Arise when aggregate demand in an economy
outpaces aggregate supply.
Too much money chasing too few goods.
 Cost Push Inflation
Arise when firms respond to rising costs, by
increasing prices to protect their profit margins.

Can be caused by:

Rising unit labour costs
Higher costs of components / raw materials
Depreciation in the exchange rate causing a
rise in import costs
An increase in business taxes e.g. VAT or
environmentalists taxes