“ it is a process in which prices are allowed to rise without any attempt on part of government to control them. Under open inflation goods are distributed through price mechanism. Price mechanism is a situation in which , those people who have large money to spend, buy more goods.”
Situation in which rising prices are controlled through measures taken by the government .
“ suppressed inflation is more dangerous than open inflation because of the corrupt officials responsible for administrating price control ,black market raises its ugly head”.
B- On the basis of political conditions ::
1. War time inflation-
In order to meet the war expenses government increases the supply of money. Large proportion of the production is bought by government itself. Relatively small proportion is left to the general public.
Underdeveloped countries need large resources for economic planning. In order to mobilize resources, government has to resort deficit financing .It leads to inflation which is known as peace time inflation.
C- On the basis of the scope ::
Sectoral inflation- When inflation affects only a particular part of the country or covers only one or two goods like pulses,petrol etc,it is called sectoral inflation .
Comprehensive inflation- When inflation is not confined to a given part of the country or a few goods ,but comprise the entire country and all goods ,it is called comprehensive inflation
Such an inflation is not only considered beneficial to the economy but is also considered essential to some extent.
Some economists are of the view that 3% rise in prices can be called creeping inflation .
Appropriate and desirable in the interest of national development .
When there is rapid increase in prices in very short period of time it is called running inflation .In this case rate of inflation is between 80 and 100% over a decade. Such an inflation has adverse effect on poor and middle sections of the society.
1. Monetary measures- Classical economists are of the view that inflation can be checked by controlling the supply of money. Some of the important monetary measures to check the inflation are as under:
Control over money-
It is suggested that to check inflation government should put strict restrictions on the issue of money by the central bank.
Central bank should pursue credit control policy .In order to control the credit it should increase the bank rate ,raise minimum cash reserve ratio etc. It can also issue notice to other banks in order to control credit
2.Fiscal measures- Measures taken by the government to control inflation.
A: Decrease in public expenditure- One of the main reasons of inflation is excess public expenditure like building of roads ,bridges etc. Government should drastically scale down its non essential expenditure .
B-Delay in payment of old debts: Payment of old debts that fall due should be postponed for sometime so that people may not acquire extra purchasing power.
C-Increase in taxes : Government should levy some new direct taxes and raise rates of old taxes.
D-Over valuation of money : To control the over valuation of money it is essential to encourage imports and discourage exports
1 Increase in the production- One of the major causes of the inflation is the excess of demand over supply ,so those goods should be produced more whose prices are likely to rise rapidly .In order to increase production public sector should be expanded and private sector should be given more incentives.
2 Proper commercial policy- Those goods which are in scarcity should be imported as much as possible from other countries and their export should be discouraged.
3 Encouragement to savings – During inflation government should come out with attractive saving schemes. It may issue 5 or 10 year bonds in order to attract savings.
4 Proper investment policy- Investment in those industries should be increased wherein more production of goods can be generated over a short period of time .Less investment should be made in industries having long production period.
5 Marginal requirements- It is the difference between the value of security and loan advanced .