Inflation refers to a persistent rise in the general price level over time that reduces the purchasing power of money. It occurs when there is too much money chasing too few goods. Inflation can be measured by calculating the rate of inflation, which is the percentage change in a price index from one year to the next. Price indices like the consumer price index, producer price index, and GNP deflator are used to measure inflation by weighting the prices of different commodities based on their economic importance. Inflation can be caused by an increase in demand, like growth in money supply or incomes, or a decrease in supply, like shortages in capital or raw materials. It takes different forms depending on the rate of price

1. INFLATION
It means a situation of rising prices
of goods which lowers the
purchasing power of money.
Too much money chasing too few
commodities.
Inflation is persistent and
appreciable rise in price level.
Rate of inflation=price level (t
year)(t-1 year)/price level(t-1year)

2. PRICE INDEX
It is a weighted average of individuals price ,
where weight of each commodity reflect the
economic importance of that commodity.
• Type : 1) consumer price index
• 2) producers price index
• 3) GNP deflator

3. 1)CONSUMER PRICE INDEX
• Price indices are measured by weighing the
economic importance of each commodity
• Each item is assigned fixed weight
proportional to the relative prices in
consumers expenditure budget.

4. 2)PRODUCER PRICE INDEX
3)GNP DEFLATOR
• 1)it measures the level of prices of food items
manufactured products mining products etc.
at wholesale or producer stage.
• 2)ratio of nominal GNP/real GNP.

5. INFLATION OTHER FORMS
DEFLATION-supply of money at a particular time
is less than the demand pigou defined it as
the state of falling of prices when output of
goods and services increases more rapidly
than the volume of money income of economy.
REFLATION- moderate degree of controlled
inflation
DISINFLATION-decline in rate of inflation.
STAGFLATION-inflation accompanied by
stagnation of development(high price ; high
employment)

6. CAUSES OF INFLATION
Increase in demand(increase in money supply
; disposable income; investment goods
;exports ; salary wages clearance allowance
population)
Decrease in supply(deficiency of capital
equipment ; scarcity in factor of production;
increase in exports ; decrease in imports;
hoarding by traders ; natural calamities)

7. TYPES OF INFLATION
• 1)% rise per annum
• Suppressed inflation- govt does not control the
factor causing inflation it only imposes
controls to check the price rise.
• Creeping-rise less than 3%per annum.
• Walking-rise between 3% to 6%.
• Running-sustained rise in 10% per annum.
• Galloping/hyper-more than 16 %.

8. TYPES
• 2)DEMAND
• Demand pull inflation/excess inflation-
excessive demand prices upward.
• Demand shift inflation-shift in demand of diff
goods without change in total demand.
• Cost push inflation-higher wages and profits.
• Mixed-when both demand pull and cost push
occurs simultaneousely. e.g poor harvest price
of agriculture commodity rises.

9. TYPES
• 3)ROLE OF GOVT
• Open inflation-market forces operate freely ,
price of goods are set without interruption by
authorities.
• Repressed inflation- govt actively intervenes to
check the rise in the price level through use of
price control measures.

10. TYPES
• 4)NUMBER OF COMMODITY
• COMPREHENSIVE-when price of all commodity
rises.
• SPORADIC- sectoral /price of few commodity
rises.
• 5)MARKUP INFLATION-when a business
organization add markup prices to the production
cost to get targeted rate of profit.
• 6)PROFIT INDUCED INFLATION-production cost
decline but the govt does not allow the price to
decline which increase in profits of producers.