Inflation and impacts

1. INFLATION &
IMPACTS
RAMYA
NIVETHA
SIDHIQA AYSHA
LAVYARCHANA

2. INFLATION MEANING
In economics, INFLATION is
defined as a sustained
increase in the general price
level of goods and services in
an economy over a period of
time.

3. TYPES OF INFLATION
ON THE BASIS OF CAUSES
 CURRENCY INFLATION
 CREDIT INFLATION
 DEFICIT-INDUCED INFLATION
 DEMAND-PULL INFLATION
 COST-PUSH INFLATION

4. ON THE BASIS OF SPEED OR INTENSITY
 CREEPING OR MILD INFLATION
 WALKING INFLATION
 GALLOPING AND HYPERINFLATION
 GOVERNMENT’S REACTION TO INFLATION

5. CAUSES OF INFLATION
 DEMAND-PULL INFLATION
THEORY
-RIGHTWARD SHIFT IN NEGATIVE
SLOPING AGGREGATE DEMAND CURVE
 COST PUSH INFLATION THEORY
- LEFTWARD PUSH OF AGGREGATE
SUPPLY

6. FORMULA FOR INFLATION

7. MEASUREMENT OF INFLATION
1. Wholesale Price Index (WPI) – It is estimated by the
Ministry of Commerce & Industry and measured on a
monthly basis.
2. Consumer Price Index (CPI) – It is calculated by
taking price changes for each item in the
predetermined lot of goods and averaging them.
3. Producer Price Index – It is a measure of the average
change in the selling prices over time received by
domestic producers for their output.
4. Commodity Price Indices – It is a fixed-weight index or
(weighted) average of selected commodity prices,
which may be based on spot or futures price
5. Core Price Index – It measures the prices paid by
consumers for goods and services without the volatility
caused by movements in food and energy prices. It is
a way to measure the underlying inflation trends.
6. GDP deflator – It is a measure of general price
inflation.

8. IMPACTS OF INFLATION
Favourable Impacts of Inflation
The favourable impacts of inflation are as follows:
• Higher Profits
• Better Investment Returns
• Increase in Production
• More Employment and Better Income
• Shareholders can earn a good income
• Benefits to Borrowers income

9. Unfavourable Impacts of Inflation
The unfavourable impacts of inflation are as follows:
• Fixed-Income Groups experience a fall in income
RealIncome=Money Income / Price Level
• Inequality in Income Distribution Increases
• Upsets the Planning Process
• Speculative Investment Increases
• Harmful Effects on Capital Accumulation
• Lenders face Losses
• Negative Impact on Export Income

10. INFLATION IN INDIA 2022
• SOARING INFLATION
Inflation was one of the major factors that affected the Indian economy this year. The
country's retail inflation measured by the Consumer Price Index (CPI), dropped to an
11-month low of 5.88% in November 2022 after RBI raised the repo rates several
times since April. Concern grew as the RBI failed to bring down the inflation rate for a
few months despite repeated rate hikes. The accepted rate of inflation is supposed to
be at 6 per cent, but the limit was breached in January and spiked to 7.79 per cent in
April.

11. REMEDIES TO INFLATION
• MONETARY POLICY
The monetary policy of the Reserve Bank of India is aimed at
managing the quantity of money in order to meet the
requirements of different sectors of the economy and to boost
economic growth.
This contractionary policy is manifested by decreasing bond
prices and increasing interest rates. This helps in reducing
expenses during inflation which ultimately helps halt economic
growth and, in turn, the rate of inflation.
• FISCAL POLICY
Monetary policy is often seen separate from fiscal policy which
deals with taxation, spending by government and borrowing.
Monetary policy is either contractionary or expansionary.
When the total money supply is increased rapidly than normal, it
is called an expansionary policy while a slower increase or even
a decrease of the same refers to a contractionary policy.
It deals with the Revenue and Expenditure policy of the
government.