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Economics Inflation.pptx
- 2. INTRODUCTION MEANING : Inflation in Economics is defined as the persistent increase in the price level of goods & services and decline of purchasing power in an economy over a period of time. • If the rise in prices exceeds the rise in output, the situation is called an inflationary situation. • DEFINITION:According to Coulborn, Inflation can be defined as,“too much money chasing too few goods.” • EXAMPLE 1965 1995 2019 WHEAT 2 8 25 MILK 1.00 12 46 SUGAR 3 10 45
- 3. TYPES OF INFLATION MONEY SUPPLY Money supply refers to the stock of the money in circulation in the economy at the given point of time. M1 Currency with public + demand deposits with banks+ other deposits with RBI M2 M1+ saving deposits with the post office M3 M1+ time deposits with bank M4 M3+ both demand and time deposits with the post offices
- 4. DEMAND-PULL INFLATION It occurs when the demand for goods or services is higher when compared to the production capacity. The difference between demand and supply (shortage) result in price appreciation
- 5. COST- PUSH INFLATION It occurs when the cost of production increases. Increase in prices of the inputs (labour, raw materials, etc.) increases the price of the product
- 6. • Expectation of future inflations results in Built-in Inflation. A rise in prices results in higher wages to afford the increased cost of living. Therefore, high wages result in increased cost of production, which in turn has an impact on product pricing. • It can also viewed as a double- edged sword BUILT-IN INFLATION
- 7. EFFECTS OF INFLATION ADDITIONAL CASH PRINTING: • When the government is required to increase its expenditure beyond budgetary allocation in view of a crisis situation, the central bank has the option of printing more money to support the additional liquidity requirements. • While additional money printing is likely to increase the demand for goods & services, it may lead to a sharp rise in inflation if the economic output fails to support demand. In turn, there will be a sharp increase in prices of existing goods & services as the demand will rise, but supply won’t. • Additional or excess of cash printing leads to ‘Inflation’.
- 8. Example: Hyperinflation in Venezuela is the currency instability in Venezuela that began in 2016 during the country’s ongoing socioeconomic and political crisis. • Venezuela migrants in Bogota selling crafts made of worthless Venezuela banknotes in November 2019. Example: For instance , additional money printing is a strategy that many developed nations adapt to fight a recession. The US has done it during the Coronavirus pandemic to make credit easily available at lower interest rates. But it has also expressed the need to gradually taper the additional stimulus in view of upside risk to inflation.
- 9. MEASURES TO CONTROL INFLATION MONETARY POLICY FISCAL POLICY OTHER MEASURES Increasing in bank rate Increasing taxes Increase in production Selling of securities in the open market Reduces public expenditure price control Increasing the CRR Surplus budget Increasing the margin
- 10. HOW TO MEASURE INFLATION RATE • In India there are two main sets of inflation indices to measure changes in the price level- consumer price index (CPI) and wholesale price index (WPI) these indices measure changes at retail and wholesale price levels respectively. • CPI tracks any shift in retail prices of essential and day boots and services consumed by households across the country in short it captures changes in price level at the consumer level. • WPI on the other hand it is average change in the price of commodities at the wholesale level it considers their price of goods traded among corporations not goods purchased by consumers they aim of WPI is to monitor price drifts that reflected demand and supply in manufacturing industry and construction. • PPI –PRODUCER PRICE INDEX A family of indices that measure the average change over the time in selling prices by domestic producers of goods and services PPI S measure price change from the perspective of the seller
- 11. What is India’s inflation rate in 2020? India’s Inflation rate in 2020 is around 3.34%. The inflation rate of an economy is determined by the increase in the price of the product basket. The product basket consists of the services and goods on which an average consumer spends through the year. For example, rent, power, clothing, groceries, telecommunication, domestic needs (oil, gas), recreational activities, and taxes, etc. In 2019, India’s inflation was around 4.54%.
- 12. NOMINAL INTEREST RATE & INFLATION ACROSS LATIN AMERICA IN 199Os
- 13. HOW IS INFLATION RELATED TO UNEMPLOYMENT? A.W. Phillips was one of the first economists to present compelling evidence of the inverse relationship between unemployment and wage inflation. The Phillips curve shows the inverse relationship between inflation and unemployment: as unemployment decreases, inflation increases. The Phillips curve relates the rate of inflation with the rate of unemployment. The Phillips curve argues that unemployment and inflation are inversely related: as levels of unemployment decrease, inflation increases. The relationship, however, is not linear. Graphically, the short-run Phillips curve traces an L- shape when the unemployment rate is on the x-axis and the inflation rate is on the y-axis.
- 15. Analytics of Food Inflation in India
- 16. OIL PRICES INCREASES:WHY ARE THE 2000s so Different from the 1970s?
- 18. IS INFLATION GOOD OR BAD FOR ECONOMY? • The Federal Reserve targets a 2% annual inflation rate believing slow and study price increases help keep business profitable. When Inflation is greater than 2% it becomes dangerous. I believe a moderate amount of inflation is considered to be a sign of healthy economy.