INFLATION

TYPES, EFFECTS AND CONTROL MECHANISMS

 INFLATION DEFINED
• Inflation is defined as a sustained increase in the price level or a fall
in the value of money.

• Inflation is a rise in general level of prices of goods and services in

the country over a period of time
 IMPACT OF INFLATION
• In a broad sense , inflation is that state in which the prices of goods
and services rise on the one hand and value of the money falls on the
other .

• As the cost of goods and services increase , the value of a currency

declines because you won’t be able to purchase as much with that
currency as you could have last month or year.
 OTHER TERMS RELATED TO
INFLATION
• DIS INFLATION
The reduction of rate of inflation is termed as Disinflation
• STAGFLATION
High inflation combined with economic stagnation and
unemployment.
HYPERINFLATION
An out of control inflationary spiral is known as Hyperinflation
HYPER INFLATION
 TYPES OF INFLATION
DEMAND PULL INFLATION
• The demand for goods and services increases and production remains
same or does not increase as fast.
• The excess demand results in prices being pulled up.
• The demand pull inflation occurs when total demand for goods and
services exceeds the total supply.
• This type of inflation happens when there is an inflationary gap.
 TYPES OF INFLATION
COST PUSH INFLATION
The cost push inflation is caused by an increase in
the cost of production.
Increased costs push up the price level.
 CAUSES OF INFLATION
• Population explosion. • Oil prices.

• Political Instability. • Corruption.

• Imported goods. • Slow agricultural development

• Increase in wages and salaries.

• Slow Industrial growth

• Climatic factors
 EFFECTS OF INFLATION
• Un employment
• Decreasing the purchasing power
• Decrease in stock.
• Exports decline.
• Breakdown of monetary
• system.
• Investment fall.
 REMEDIES TO CONTROL INFLATION
• Increase the supply of essential items .
• Tighten monetary policy.
• Reduce government expenditures
• Reduce public borrowing by government.
• Control deficit financing .
• Provision of subsidies.
• Explore new energy resources .
• such as : solar energy , wind energy, and construction of new dams, etc…
• Population Control
 MEASURES TO CONTROL INFLATION
MONETARY MEASURES
• Monetary policy is the process by which the monetary authority of a
country controls the supply of money, often targeting a rate of interest for
the purpose of promoting economic growth and stability.
• The official goals usually include relatively stable prices and low
unemployment.
• Monetary policy is adopted by central bank of a country.
• Use high interest rates as the traditional way
• Decrease money supply.
• Decrease availability of credit from banks.
• Decrease currency control.
 MEASURES TO CONTROL INFLATION
FISCAL MEASURES
• Fiscal policy is the deliberate change in either government spending
or taxes, to simulate or slow down the economy.
• Increase direct taxes.
• Increase indirect taxes.
• Reduce government spending .
• Increase in savings
• Surplus budgets
OTHER MEASURES • To Increase Production
• Rational Wage Policy
It means the step of
• Price Control
government like • Control of smuggling
rationing of goods and
• Industrial peace
freezing of prices and
wages. The government • Control of money supply
can also increase • No deficit financing
voluntary savings of
people by giving them • Population control
various incentives • Simple living