It is persistent rising
in the general price
• Sometimes due to bottlenecks in the economy, an
increase in money supply may cause costs and prices
to rise more than the rise in output and employment.
This is called Semi-inflation.
• Once full employment level is reached, the entire
increase in money supply is reflected by rising prices-a
case of True inflation.
No. of Years
AB—Recovery (Reflation )
The rate where Costs rise due to Economic
trends of Spending Products and Services.
Existing inflation disguised by government Price
controls or other interferences in the economy such
as subsidies. Such suppression, nevertheless, can
only be temporary because
no governmental measure can completely contain
accelerating inflation in the long run. It is Also Called
• In economics, occurs when the rate of inflation in
a country accelerates very quickly, and is
perceived to be unstoppable.
• Galloping inflations are often associated with war
and various types of socio political upheaval.
• Very Rapid Inflation which is almost impossible to
• Circumstance where the inflation of a nation
increases gradually, but continually, over time.
• This tends to be a typically pattern for many
• Although the increase is relatively small in the
short-term, as it continues over time the effect will
become greater and greater.
• Creeping or mild inflation is when prices rise 3% a
year or less.
• Hyperinflation is an extremely rapid period of
inflation, usually caused by a rapid increase in the
• Usually due to unrestrained printing of currency.
• Classic examples are the Hyperinflation of Weimar
Germany and the more recent Zimbabwean
Hyperinflation which reached 2.2 Million Percent.
• Inflation Rate in India is reported by the Ministry of
Commerce and Industry, India
• The Wholesale Price Index (WPI) is the price of a
representative basket of wholesale goods
• The WPI focuses on the price of goods traded between
corporations, rather than goods bought by
consumers, which is measured by the Consumer Price
• Purpose of WPI- monitor price movements that reflect
supply and demand in industry, manufacturing and
• The Indian WPI figure was released weekly on every Thursday but
since 2009 it has been made monthly
• The WPI is calculated on the base year 2004-05= 100
• The WPI is divided into three groups:
Primary Articles (20.12 percent of total weight)
Fuel and Power (14.91 percent)
Manufactured Products (64.97percent)
• The CPI is measured by Central Statistics Office (CSO), Ministry of
Statistics and Programme Implementation
• Calculated on the base year 2010 = 100 for all-India and States/UTs
separately for rural, urban and combined every month w. e. f January,
• WPI : 4.68 % in Feb. 2014
• CPI: 8.10 % in Feb. 2014
• Inflation rates in Feb. 2014
• for Rural 8.51%
• for Urban 7.55%
• Caused by increases in aggregate demand due to increased private
and government spending.
• Encourages economic growth since the excess demand and
favourable market conditions will stimulate investment and expansion.
• Caused by a drop in aggregate supply (potential output).
• Also called "supply shock inflation"
• It involves workers trying to keep their wages up with prices and firms
passing these higher labour costs on to their customers as higher
Most significant factor influencing inflation or deflation
is how fast the money supply grows or shrinks
Fiscal policy, or government spending and taxation, is
ineffective in controlling inflation
"Inflation is always and everywhere a monetary
• Hardships for poor people and fixed income salaried
• Business Profits tend to go up in times of inflation
• Demand for pay hikes and wage increases
• Social tensions
• Higher Income tax rates
• Value on money lent out falls in purchasing power -
value of money to be repaid falls in terms of
purchasing power falls
• Interest rates might rise
• Instability in exchange rates
• Uncertainty about the future purchasing power of
money discourages investment and saving
• Deficit in the balance of trade
• They add inefficiencies in the market, and make it
difficult for companies to budget or plan long-term
• Central Bank may try to control money supply growth
through hike in cash reservation, raising discount rates
and conduct open market sale of securities
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
• Credit control
Measures taken by the government to control inflation.
• Decrease in public expenditure
• Delay in payment of old debts
• Increase in taxes
• Over valuation of money
• Increase in the production
• Proper commercial policy
• Encouragement to savings
• Proper investment policy
SIES College of Management
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