Inflation refers to the sustained increase in the general price level of goods and services in an economy over time. When inflation occurs, each unit of currency buys fewer goods and services, leading to a decrease in the purchasing power of money. Inflation is typically measured using various economic indicators, such as the Consumer Price Index (CPI) or the Wholesale Price Index (WPI). These indices track the average price changes of specific baskets of goods and services over time.

1. Inflation and Deflation
LBE CIA
Presentation
Guidence- Meenakshi s. k.
Gaikwad Shashikant Narayan
PMB22M1028

2. Inflation
Inflation refers to the sustained increase in the general price level of goods and services in an
economy over time. When inflation occurs, each unit of currency buys fewer goods and services,
leading to a decrease in the purchasing power of money.Inflation is typically measured using
various economic indicators, such as the Consumer Price Index (CPI) or the Wholesale Price
Index (WPI). These indices track the average price changes of specific baskets of goods and
services over time.
• Implications for the legal business environment:
 Cost of legal services: Inflation can lead to higher costs for legal services. Law firms may
need to increase their fees to cover rising expenses, such as salaries, rent, and supplies. Clients
may find it more expensive to access legal services, which can impact their ability to seek
legal representation or access justice.
 Contractual obligations: Inflation can affect the value of money over time. Contracts with
fixed monetary terms can become less favorable to one party if prices rise significantly. In
such cases, parties may seek to renegotiate or amend contracts to account for inflationary
effects.

3.  Regulatory impact: Governments often respond to inflationary pressures by implementing monetary and
fiscal policies. These policies may introduce new regulations or change existing ones, affecting the legal
environment. For example, central banks may adjust interest rates or implement monetary tightening
measures to curb inflation, which can impact business financing and investment decisions.
 Legal disputes: Inflation can influence the types and frequency of legal disputes. For instance, as prices rise,
consumers may be more inclined to sue businesses for alleged price gouging or unfair trade practices.
Additionally, inflation can affect damages calculations in civil litigation, as the value of money changes over
time.
Causes of inflation:
1. Demand-Pull Inflation: This occurs when the overall demand for goods and services exceeds the available
supply. Increased consumer spending, government spending, or investment can drive up prices as
businesses struggle to meet the higher demand.
2. Cost-Push Inflation: This type of inflation is caused by increases in production costs, such as wages or raw
materials. When businesses face higher input costs, they may pass on those costs to consumers by raising
prices.
3. Built-In Inflation: This refers to the inflationary expectations of individuals and businesses. If people expect
prices to rise in the future, they may demand higher wages or increase prices in anticipation, thereby
fueling inflation.
4. Monetary Inflation: When there is an excessive growth in the money supply relative to the growth of goods
and services, it can lead to inflation. If more money is chasing the same amount of goods,
prices tend to rise.

4. Deflation
Deflation refers to a sustained decrease in the general price level of goods and
services in an economy over time. It is the opposite of inflation. In a deflationary
environment, each unit of currency can buy more goods and services, increasing the
purchasing power of money.Deflation can occur due to various factors, including:
Decreased Demand: When there is a significant decrease in consumer spending,
business investment, or government expenditure, it can lead to decreased demand for
goods and services. This reduced demand can cause businesses to lower their prices to
attract customers, leading to deflationary pressures.
Technological Advancements and Efficiency Improvements: Technological
advancements and improvements in productivity can lead to lower production costs.
When businesses can produce goods and services more efficiently, they may reduce
prices, causing deflation.
Excess Capacity: If there is excess production capacity in an industry or economy,
businesses may engage in price competition to fill that capacity, resulting in
deflationary pressures.

5. Deflation impact on economy:
1. Increased Purchasing Power: Consumers benefit from deflation as their money can
buy more goods and services, increasing their purchasing power.
2. Delayed Purchases: In a deflationary environment, consumers may delay making
purchases as they anticipate further price declines. This can lead to decreased
consumer spending and a slowdown in economic activity.
3. Increased Debt Burden: Deflation can increase the burden of debt. When prices are
falling, the value of money increases, making it more difficult for borrowers to
repay fixed-dollar debts.
4. Reduced Business Profits: Businesses may experience lower revenues and profits in
a deflationary environment due to decreased consumer spending and
price reductions.

6. Deflation is generally considered undesirable by policymakers and central
banks. It can lead to a deflationary spiral, where falling prices lead to
decreased economic activity, which further reduces prices, creating a self-
reinforcing cycle of declining demand and prices. To combat deflation,
central banks may implement expansionary monetary policies, such as
lowering interest rates and increasing money supply, to stimulate spending
and investment.
important to note that moderate levels of deflation, often driven by
technological advancements and productivity gains, can be beneficial for
an economy. However, severe or prolonged deflationary periods can pose
significant challenges to economic stability and growth.

7. Point Inflation Deflation
Definition Inflation is defined as the
increase in the price levels
of goods and
services in an economy
Deflation is termed as the
decrease in price levels of
goods and
services in an economy
Impact on demand Demand for products and
services increase in inflation
Demand for products and
services decrease
in deflation
Impact on national income No impact on national
income
National income declines as
a result of deflation
Consequences seen Distribution of income is not
equal as a result of inflation
There is a rise in level of
unemployment in the nation
as a result of deflation
Is it beneficial Moderate levels of inflation
is considered good
for the economy
Calculated based on only
the amount that is availed
Impact on purchasing power of
money
Decreases the purchasing
power of money
Increases the purchasing
power of money

8. Thank You