“INFLATION”
-ANOOP GORIYA
MBA(GEN)
[Link].-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?
[Link] prices to be considered include taxes?
[Link] 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.
[Link] uses sample set of 435 commodity for
inflation calculation.
[Link] price of whole sale market.
[Link] 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 !
