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Inflation
Inflation
Inflation
Inflation
Inflation
Inflation
Inflation
Inflation
Inflation
Inflation
Inflation
Inflation
Inflation
Inflation
Inflation
Inflation
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Inflation

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  • 1. InflationDefinition, types and causes of inflation
  • 2. Areas to focus on
  • 3. What Is Inflation?• Inflation is an increase in the average level of prices, not a change in any specific price.• Inflation is a phenomenon whereby general price level rises persistently.• According to Prof. Crowther,• “Inflation is a state in which the value of the money falls and price level persistently rises.”• Prof. Ackly, “inflation is a persistent and appreciable rise in the general value of average prices”.• Prof. Piguo, “inflation takes place when price level expands more proportion to output”.
  • 4. Types of inflation on the basis of inflation rate• Creeping inflation• A situation in which the rise in general price level is at a very slow rate over a period of time. Under creeping inflation, the price level rises up to a rate of 2 percent per annum. A mild inflation is generally considered a necessary condition of economic growth.• Walking inflation. Walking inflation is a marked increase in the rate of inflation as compared to creeping inflation. The price rise is around 5 percent annually.
  • 5. Continued….• Running inflation. Under running inflation, the price increase is about 8 to 10 percent per annum.• Galloping or Hyper Inflation. Galloping inflation is a full inflation. Keynes calls it as the final stage of inflation. It is a stage of inflation which starts after the level of full employment is reached. Here price level rises very rapidly within a short period.
  • 6. Social Tensions• Tensions between labor and management, between government and the people, and among consumers may overwhelm a society and its institutions.
  • 7. Money Illusion• The use of nominal Rupee rather than real to gauge changes in one’s income or wealth is called the money illusion.
  • 8. Macro Consequences• Inflation can alter the rate and mixes of output by changing consumption, work, saving, investment, and trade behavior.
  • 9. Uncertainty• People tend to shorten their time horizons in the face of inflation uncertainties.• Time horizons are shortened as people attempt to spend money before it loses further value.
  • 10. Speculation• Few people will engage in production if it is easy to make speculative profits.• Such speculation may fuel hyperinflation. – Hyperinflation is an inflation rate in excess of 200 percent, lasting at least one year.
  • 11. Bracket Creep• Bracket creep is the movement of taxpayers into higher tax brackets (rates) as nominal incomes grow.
  • 12. Deflation Dangers• Deflation — a falling price level — might not make people happy either.• Deflation reverses the redistributions caused by inflation.• Lenders win and creditors lose.
  • 13. Measuring Inflation• Measuring inflation serves two purposes: – Gauges the average rate of inflation. – Identifies its principal victims.
  • 14. Causes of Inflation• The cause of inflation is rooted in supply and demand.
  • 15. Demand-Pull Inflation• Demand-pull inflation results from excessive pressure on the demand side of the economy.• “Too much money chases too few goods” enabling producers to raise prices.
  • 16. Cost-Push Inflation• The pressure on price could also originate on the supply side.• Higher production costs put upward pressure on product prices.

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