G.Jamunarani Assistant Professor, Ethiraj College for women,Chennai

1. INFLATION
• Meaning
• Definition
• Causes
• Types
• Demand –pull Inflation
• Cost- push Inflation
• Types
• Effects
• Measures to Control of Inflation
• Inflation in india
• Inflationary Gap

2. INFLATION – Meaning
• A substantial and rapid increase in the general price level
which causes a decline in the purchasing power of money.
• It is statistically measured in terms of percentage increse in the
price index per unit of time usually a year or a month.

3. Definition
“ a state in which a value of money is
falling”
- Crowther
“a persistent and appreciable rise in
the general level or average of
prices”
- Gardner Ackley
“ too much money chasing too few
goods”
- Coulborn
“ too much currency in relation to the
physical volume of business being
done”
- Kemmerer
As a phenomenon of Rising prices As a monetary phenomenon

4. CAUSES
Factors causing Increase
in Demand
Factors causing
decrease in Supply
Increase in Money supply
Increase in Govt expenditure
Increase in Private
expenditure
Reduction in Taxation
Increase in Export
Increase in Population
Paying off debts
Black Money
Scarcity of factors of Production
Hoarding
Trade Union Activities
Natural Calamities
Increase in Exports
Law of Diminishing Returns
Lop – sided production
International Causes

5. DEMAND PULL
INFLATION
It is a situation where the
aggregate demand exceeds the
economy’s ability to supply the
goods and services at the current
prices
Thus the prices are pulled upward
by the upward shift in demand
function
DPI = AD > AS
P2
P1
P F
D
D1
D2
o Y Output
S
 SS - supply curve which is horizontal until full empt is
reached
ItbecomesverticalstraightlineatpointFshowsfullempt
isreached
Oy–realoutput
DintersectstheSScurve atpointFthepricelevelisOP
Shifting of point D to D1& D2 indicates an increase in
ADfuncion
GiventhesupplyoftotaloutputpricetendstorisefromP
toP1andP2

6. COST –PUSH
INFLATION
Y
D
o y1 y output
“ a rise in the cost of production
leads to a rise in the price level”
Cost-Push inflation caused by
 an increase in wages
 an increase in the profit
margins
E1
EE
P1
P
D
S
S
S’
It is also known as
seller’s DD at point E
determining proce OP at
OY full empt
Increase in cost shift the
S to S’, intersects DD atE1
PricelevelrisesOPtoOP1
OutputdecresesfromOYtoOY1
Simultaneous increase in price level and
unemployment

7. Types of
inflation
OnthebasisofSpeed
Creeping
Walking
Running
GallopingorRunning
OnthebasisofInducement
Wage,Profit, Scarcity
Deficit, currency
credit
OnthebasisofTime
PeaceTime
WarTime
Posts-wartime
onthebasisofscope
Comprehensive
Sporadic
Onthebasisofreaction
OpenInflation
SuppressInflation
Demand –Pull
Inflation
Cost-Push Inflation
Onthebasisoflevelof
empllyment
Partialinflation
FullInflation
Stagflation
Ratchet Inflation
Core
Inflation
Asset
Inflation
Slump
Inflation

8. CREEPING
INFLATION
Price between 2 to 3
% p.a
WALKING
INFLATION
Price by 3 to 7 % p.a
RUNNING INFLATION
Price at a rate of speed
of 10 to 20 % p.a
GALLOPING OR
HYPER INFLATION
Price very fast at more than
20 to 100 per cent per annum
Itisamildtypeof
inflation
Beneficial to
Economicgrowth
It is not so
dangerous
Harmful to eca
It is the warning signal
for the govt to control
Harmful to an economy
It is due to increase in
Demand
Inflation affects poor and
middleclassesadversely
Control requires strong fiscal
andmonetarymeasures
OtherwiseitwillleadtoHyper
inflation
It is a situation when rate of inflation becomes
immeasurableanduncontrollable
Pricerise everyminuteandnolimitoftheheight
ContinuousfallinthevalueofMoney
TotalcollapseofMonetarysystem
ON THE BASIS OF SPEED

9. EFFECTS
ECONOMIC EFFECTS
NON-ECONOMIC
EFFECTS
Effects on
Production
Effects on
distribution
Social Effects
Redistribution of I an W
in favour of Rich
Creates conflicts in the
society
Disrupts Price system
Reduces Savings
Encourages Hoardings
Encourages speculation
Reduces Volume of
Prdn
Affects Pattern of
Prodn
Affects Quality of
products
Debtors and Creditors
Wage and Salary earners
Fixed Income groups
Business Community
Farmers
Moral Effects
Encourages black
marketing
Adulteration in the
products
Political Effects
Corruption
Loss of faith in the
government
Dissatisfaction
among masses

10. MEASURES TO CONTROL INFLATION
MONETARY POLICY FISCAL POLICY OTHER MEASURES
Increasing Bank Rank
Open Market Operation
Higher Reserve Ratio
Selective credit Control
Increase in Taxation
Reduction in Public Expd
Public Borrowing
Control of Deficit
financing
Expansion of Output
Proper wage policy
Encouragement to saving
Over valuation
Population control
DIRECT CONTROLS
Direct control on prices
Rationing
Itisadoptedbythemonetaryauthority
toinfluencethessofmoney
It is the budgetary policy
of the govt