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  1. 1. INFLATION Meaning, Measures and Impact on Indian Economy By Surajit Basak Sananda Dasgupta Sangeeta Nandi Suvajit Das Sougata Dhar Bandel Bholanath Ghosh Institute Of Engineering & Management PGDM 1ST YEAR By
  2. 2. INFLATION: Meaning In a broad sense, inflation is that state in which the prices of goods and services rise on the one hand and value of money falls on the other When money circulation exceeds the production of goods and services, then inflation takes place in the economy
  3. 3. Features of Inflation It is a continuous process. It refers to a rise in prices in general. It involves a considerable increase in prices. It causes a decline in the purchasing power of money.
  4. 4. Types of Inflation 1. 2. Demand Pull Inflation Cost Push Inflation
  5. 5. Demand Pull Inflation  The demand for goods and services increases and production remains the same or does not increase as fast. The excess demand results in prices being “pulled up”.  Demand pull inflation occurs when total demand for goods and services exceeds the total supply.  This type of inflation happens when there is an inflationary gap
  6. 6. Demand Pull Inflation Price $ Aggregate Supply P2 Aggregate Demand 2 P1 Aggregate Demand 1 Q1 Q2 6 Real GDP ($)
  7. 7. Cost Push Inflation Caused by an increase in the cost of production. Increased costs “push up” the price level.  Cost push inflation can result from change in aggregate supply.  The two main sources of change in aggregate supply are increase in wage rate and price of raw material. 
  8. 8. Cost Push Inflation Price $ Aggregate Supply 2 Aggregate Supply 1 P2 P1 Aggregate Demand Q2 Q1 8 Real GDP ($)
  9. 9. Consequences of inflation Inflation impacts negatively on economic growth. Inflation brings about uncertainty in the economy. Savings and investment are discouraged. Inflation affects the distribution of income. Redistributes income from people with fixed incomes to those with flexible incomes. Redistributes income from private individuals to the government.
  10. 10. Consequences of inflation     Causes fiscal drag and bracket creep: salary increases move people into higher tax brackets and they could be effectively worse off. Inflation has an adverse effect on a country’s balance of payments. If India’s rate of inflation is higher than that of our trading partners the result is a loss of international competitiveness. Inflation can cause a decrease in the real money value of savings.
  11. 11. Measures to control Inflation Fiscal Measures Monetary Measures General Measures
  12. 12. Fiscal measures Increase direct taxes. Increase indirect taxes. Reduce government spending. Introduce measures to increase productivity, e.g. tax rebates
  13. 13. Monetary measures Increase interest rates of banks. Decrease money supply. Decrease availability of credit from banks. Decrease currency control.
  14. 14. General Measures         Increase productivity. Freeze prices and wages. Implement a wage restraint policy. Encourage personal savings. Implement control measures for consumer credit. Import control: make competing imported goods cheaper. Introduce price indexation: linking all prices to a particular index, e.g. CPI. Inflation targeting.
  15. 15. Empirical evidence of Inflation rate in India
  16. 16. The inflation rate in India was recorded at 5.96 percent in March of 2013,which is reported by the Ministry of Commerce and Industry In India, the wholesale price index (WPI) is the main measure of inflation. The WPI measures the price of a representative basket of wholesale goods.
  17. 17. In India, wholesale price index is divided into three groups: Primary Articles (20.1 percent of total weight), Fuel and Power (14.9 percent) and Manufactured Products (65 percent).
  18. 18. THANK YOU