Simple Explanation on Inflation. Consumer Price Index. Monetary & fiscal Policy. Inflation in India, Types of Inflation

1. RAHUL
BABAR

3. What is Inflation ?
Inflation is defined as a sustained increase in the
general level of prices for goods and services.
It is measured as an annual percentage increase.
When the general price level rises, each unit
of currency buys fewer goods and services.

4. How do you measure inflation ?
Bureau of labor statistics calculates using CPI
Consumer Price Index
The CPI is a statistical estimate constructed
using the prices of a sample of representative
items whose prices are collected periodically.

5. CPI
Housing
Fuel
Services
Transportation
Medical Care
Housing
Fuel
Services
Transportation
Medical Care
Rs 100 Rs 105
YEAR 1 YEAR 2
Increase by Rs 5 which is
5% increase
5% Inflation rate

6. Why should we care ?
We can compare inflation numbers to other
statistics, such as income, output and
investments to assess “real” growth.

7. Inflation Rate in India (by years)

8. What are the causes for Inflation ?
Demand Pull Inflation
Cost Push Inflation
Wage Price Spiral Inflation

9. Demand Pull Inflation
Inflation caused by increase in aggregate demand

10. Cost Push Inflation
Inflation caused by decrease in aggregate supply

11. Wage Price Spiral Inflation
“Wages chase prices and prices chase wages”
Workers get pay
rise to
compensate for
inflation
Rise in pay rates
pushes prices up
even further
Workers get pay
rise to
compensate for
inflation
Rise in pay rates
pushes prices up
even further
Prices go up

12. Effects of Inflation
Adverse effect on production
Adverse effect on distribution of income
Obstacle to development
Changes in relative prices
Adverse effect on the Balance of payment

13. Measures for Inflation

14. Monetary Measures
The actions of a central bank, currency board or
other regulatory committee that determine the
size and rate of growth of the money supply in
the economy.
Increasing Interest Rates
Cash Reserve Ratio (CRR)
Sale of Govt. securities in open market

15. Fiscal Measures
Fiscal measures to control inflation include
taxation, government expenditure and public
borrowings.
Reducing Govt. Expenditure
Increasing tax rate
Public Borrowing
Debt management
Overvaluation of currency

16. Conclusion