“INFLATION”

-ANOOP GORIYA
MBA(GEN)
ROLL.NO.-80
Meaning of inflation
In economics, inflation is a rise in a general price level of
goods and services in an economy over a period of time
Definitional problems:-
1. Which price index should be taken to indicate the
presence or absence of inflation?
2.Should prices to be considered include taxes?
3.Some price rises due to natural calamities are not
inflationary .
4 It is difficult to determine a safe rate of price rise.
 CHARACTERISTICS
 Inflation is the phenomenon of rising prices
 Inflation is the monetary phenomenon, it the
increase in the stock of money
 Once started it goes on feeding itself and it is not
self- limiting
 True inflation takes place only after full employment
 It doesn't increase employment and real output
 It is incompletely anticipated and grows faster then
the safe rate
REASONS FOR SELECTING WPI AS A
MEASURE OF INFLATION

There are many method to calculate inflation like

CPI, COLI, PPI.
1.WPI uses sample set of 435 commodity for
inflation calculation.
2.Include price of whole sale market.
3.WPI is available for every week.
Items included in WPI
WTI includes 435 items divided under different
sectors:-
98 items of Primary articles included food items and
non-food items like jute , pulses , grams
etc(22.02%)
19 items of Fuel , power , light and
lubricant(14.23%).
318 items of manufactured product(63.75%)
CAUSES
 Increase in money supply
 Deficit financing
 Increase in government expenditure on big development projects
 Excessive credit creation by banks to finance unproductive
business
 High rate of growth of population
 The holder of black money indulging in conspicuous
consumption
 Payment of public debt increase purchasing power
 Increase in demand for the domestic product in foreign market
Effects of inflation
 Effects on economic activity
 Redistributive effects
 Social , political and moral effects
Effects on economic activity
 Inflation discourage saving, hence investment and
capital formation
 Inflation encourages speculations
 It encourages hoardings, black marketing and
profiteering
 Inefficient businessman leads to inefficiency, lower
productivity and lower quality of product and more
inflation
REDISTRIBUTIVE EFFECT
 During inflation creditors lose and debtors gain
 Wage- earners and salary people lose because their income is fixed
 Consumers suffer a lot
 Businessman and entrepreneurs gains abnormally during inflation
 Farmers gain as a producers and debtors, but lose as a ordinary
consumers
 Government gain as a debtor and lose as a creditor
 The small investors who put their savings in fixed interest-bearing
security lose . Investors of equity gains
 If the tax rates are fixed , the payers now gain because in real term
they are paying less.
SOCIAL,POLITICAL AND MORAL EFFECTS

 Inflation widens the socio-economic inequality

among different group of people.
 It gives rise to bad relations b/w labour & mgt.
 It leads to many social & moral evils like bribery,
corruption, blackmarketing , adultery and so on
 Affect more to the lower & high income groups
TYPES OF INFLATION

On the basis of intensity:- On the basis of causes:-

Gallopin
Creepin g or Demand-pull
Walking Running Cost-push inflation
g hyper- inflation
inflation
 On the basis of different
On the basis of scope:- On the basis of time:-
processes:-

Profit-induced Wage induced Post war Peace

Partial inflation True inflation War-time
inflation inflation time time
Control of inflation
There are three main measure of controlling inflation
as under:-
 Monetary measures

 Fiscal measures

 Direct control and other measures

Monetary measures
 Money supply should be restricted.
 Bank rate may be raised.
 Open market selling of securities should be done.
 Minimum Reserve ratio should be increased.
Fiscal measures
 Reduction in public expenditure
 Tax evasion must be checked.
 Deficit financing must be controlled.
 Public borrowing should be increased.
 Govt should take measures to promote pvt savings.
 Public debt in term of money should not paid
during inflation.
Direct control and other measures

 Increase in production by better utilization of

existing resources.
 Wage should be consistent with productivity.
 Govt should invest in quick-yielding projects.
 Step should be taken against hoarding and black-
marketing.
 Unproductive expenses and unnecessary
expenditure should be avoided at all levels.
 Inflation rate of 2010

MONTH INFLATION RATE

JULY 9.97%

AUGUST 8.51%

SEPTEMBER 8.62%
THANK YOU !