This document discusses various concepts and types of inflation including definitions, problems caused, interesting inflation facts from different countries, and methods of calculating inflation. It provides recent inflation data for India, causes of inflation in India including demand-pull and cost-push factors, effects on different groups, and remedies taken by the government to tackle food and crude oil price inflation such as increasing crop yields, deregulating fuel prices, and reducing import duties. Current inflation in India has exceeded 11% in July 2008, higher than the RBI target of 4.1%, but fell to 8.98% in the first week of November due to declines in fuel and commodity prices.

1. INFLATION

2. CONCEPTS
INFLATION
DEFINATION
• GENERAL PRICE
LEVELS INCREASES
• VALUE OF MONEY
(PURCHASING
POWER OF MONEY )
FALLS
• MONEY
CIRCULATION >
PRODUCTION
PROBLEMS
• PRICE RISE IS FASTER
THAN INCOME
• STANDARD OF LIVING
DECLINES
• MAJOR SOCIAL
TENSIONS
INTERESTING
FACTS
• Hungary:-highest ever
inflation,1946
• Argentina:- 3,500
percent,1989,Brazil, 1,200
percent; Peru, 2,500 percent.
• Zimbabwe :-1ooooo
percent, September, 2008
• Delhi :- 1998 when the
Bharatiya Janata Party
(BJP) lost state elections
Onion Prices rised

3. INFLATION EFFECTONZIMBABWE
Decreasing value of Money Worst effect due to
Inflation

4. Hyperinflation:
Is the most extreme inflation phenomenon, with yearly price
increases of three-digits percentage points and an explosive
acceleration.
Extremely high inflation
It could range anywhere between 50% and 100%. High inflation is
a situation of price increase of, say, 30%-50% a year. Both kinds
can be stable or dangerously accelerate to enter in an
hyperinflation condition.
TYPESOF INFLATION

5. Contd.
Moderate inflation
It can be differently defined around the world, given the
different inflation histories. As an indication only, one could
consider an inflation as moderate when it ranges from 5% to
25-30%. For some countries, the higher part of this range is
already "high inflation".
Low inflation-
It can be characterized from 1-2% to 5%. Around zero there is
no inflation (price stability). Below zero, a country faces
deflation

6. RECENT INFLATION DATA
Data source: www.rbi.gov.in

7. METHODS OF CALCULATION
WPI CPI
Measure the temporal price change of
wholesale transactions of all
commodities in the country.
Measures the average price of
consumer goods and services
purchased by households.
The weights of items have been
assigned in proportion to their share in
the total value of transaction (output)
in the economy
Weights are assigned in proportion to
their share in the consumption
expenditure of the family of industrial
workers in the selected centers
Measures inflation at each stage of
production
Measures inflation only at final stage of
production.

8. India, is amongst few
countries of the world,
which selected WPI as its
official scale to measure
the inflation in the
economy.
Most of the major
economies like US, UK,
Japan, France, Singapore
and even our arch rival
China have selected CPI as
its official barometer to
weigh its inflation

9. YEAR WISE WPI INDIA
121.6
127.2
132.8
140.7 145.3
155.7
161.3
166.8
175.9
187.3
195.6
206.2
215.7
0
50
100
150
200
250
WPI
Index
Data source: www.mospi.nic.in

11. CAUSE OF INFLATION IN INDIA
 Demand-pull inflation refers to the idea that the
economy actual demands more goods and services than
available.This shortage of supply enables sellers to raise
prices until an equilibrium is put in place between supply
and demand.
 The cost-push theory , also known as "supply shock
inflation", suggests that shortages or shocks to the
available supply of a certain good or product will cause a
ripple effect through the economy by raising prices
through the supply chain from the producer to the
consumer.You can readily see this in oil markets.When
OPEC reduces oil supply, prices are artificially driven up
and result in higher prices at the pump.

12. Contd..
 Money supply plays a large role in inflationary
pressure as well. Low interest rates correspond with a
high levels of money supply and allow for more
investment in big business and new ideas which
eventually leads to unsustainable levels of inflation as
cheap money is available.

13. EFFECTS OF INFLATION
 DEBTORS
 ENTREPRENEURS
 INVESTORS
 FARMERS
 UPPER INCOME
GROUPS
 CREDITORS
 FIXED INCOME
GROUPS
 CONSUMERS
 MIDDLE AND LOWER
INCOME GROUPS
BENEFITS LOSES

14. EFFECT Contd…
 As inflation inched towards 12% while the
industrial growth nosedived to 3.8 per cent.

15. CRUDE OIL PRICES AND INFLATION
 Crude oil inflation
205
210
215
220
225
230
235
240
245
Jan Feb Mar Apr May Jun Jul Aug
Series2

16. INDIA VS CHINA

17. CURRENT SCENARIO
 Indeed, by July 2008, the key Indian Inflation Rate, the
Wholesale Price Index, has risen above 11%, its highest
rate in 13 years.
 This is more than 6% higher than last year, almost three
times the RBI’s target of 4.1%.
 Hardening of inflation necessitated continuation
and reinforcement of monetary policy actions to
dampen excessive demand pressures, while
providing a conducive environment for
continuation of the growth momentum.

19. REMEDIES
1. Cash Reserve Ratio increased.
2. Control over Price of Petrol and Diesel.
3. Decreased import tariff.
4. Tax increase
5. Cement price control.
6. Import duty on non-agricultural products
was brought down to 10% from 12.5%
7. Allowed appreciating the Rupee.

21. TACKLINGFOOD PRICE INFLATION
 The demand-supply mismatches need to be
addressed ,
 Raising crop yields through the use of
modern technology, improved irrigation
facilities ,provision of market-based incentive
systems for the farmers would help

22. TACKLINGCRUDEOIL ISSUE
 limiting the adverse impact of higher
international oil prices would require
adopting strategies of greater decontrol of
petroleum product pricing with targeted
subsidies, rationalization of applicable taxes
and duties to appropriate levels

23. CURRENT SCENARIO
Inflation fell sharply to 8.98% in Nov 1st week due to:
Fall in prices of fuel,mineral oil as well as manufactured products like
steel.
10.72
8.78
0
2
4
6
8
10
12
INFLATION RATE
25-Oct 1-Nov

24. Thank you……