Inflation

1. INFLATION & ITS CONCEPTS
Presentation By:
Prachi

2. INDEX:
Topics Slide No.
About Inflation
Kinds Of Inflation
Causes Of Inflation
Concepts Of Deflation , Stagflation,
Disinflation And Reinflation
Recession

3. ABOUT INFLATION:
 Inflation Is Defined As:
We Define Inflation As A Considerable And
Persistent Rise In The General Price Level Of
Goods And Services.

4. CONTINUATION:
 Note:
 This does not mean that all prices must be rising
during a period of inflation –some prices may
even be falling; but the general trend must be
upward
 It is a process of rising prices & not a state of
high prices

5. EFFECT OF INFLATION-
Price or cost of
production of goods
Money value

6. METHODS OF MEASURING INFLATION-
 Government statisticians use price indexes
and the GDP Deflator to measure inflation.
 Two of these price indexes are:
The CPI or Consumer Price Index, and
The WPI or wholesale price index.

7. KINDS OF INFLATION:
INFLATION ON THE BASIS OF RATE IS CLASSIFIED AS-
Moderate
inflation
• A single digit rate of inflation is called
moderate inflation.
• It is predictable and differ within country
Galloping
inflation
• A very high rate of inflation is called
galloping inflation.
• Inflation in double or triple digit.
Hyper
inflation
• When prices shoot up at more than 3 digit
rate per annum .

8. INFLATION ON THE BASIS OF GOVERNMENT
REACTION-
Open
Inflation
• Government does not attempt to
prevent price rise.
• Free market mechanism
Repressed
Inflation
• Government interrupts the rise in
price.
• Through price control and rationing
prevents price rise.

9. CAUSES OF INFLATION:
Overexpansion of money supply
Expansion of bank credit
Deficit financing
Monetary factors
• Huge plan investments
• High indirect taxes
• Black money
Non-monetary factors
• High population growth
• Under utilization of resources
• High prices of import

10. THEORIES OF INFLATION:
DEMAND – PULL INFLATION -
 A term used to define when price rises because aggregate
demand in an economy is greater than aggregate supply.
AD>AS
 Described as ‘too much money chasing too few goods
&services’.
 Factors that can cause a demand driven inflation are the
following-
1. increase in money supply
2. increase in government spending
3. foreign growth or foreign price increase

11. GRAPH OF DEMAND –PULL INFLATION-

12. COST – PUSH INFLATION -
 When there is increase in aggregate supply
of goods and services stemming from an
increase in cost of production , we have cost
– push inflation.
 Caused by monopolistic groups of society
like , labour, unions & firms.
 Types of cost-push inflation:
1. Wage –push inflation
2. Profit –push inflation
3. Supply –shock inflation

13. GRAPH OF COST-PUSH INFLATION-

14. EFFECTS OF INFLATION ON:
 Production
 Distribution
 Consumption and welfare

15. CONCEPTS OF DEFLATION, DISINFLATION ,
REFLATION & STAGFLATION
 Deflation – is a condition of falling prices
on account of insufficient effective
demand. Results in a continuous fall in
level of economic activity & growing
unemployment
 Disinflation – it is a process of lowering
costs & prices when they are excessively
high. Brings down inflationary trend in
prices without causing unemployment

16. CONCEPTS OF DEFLATION, DISINFLATION ,
REFLATION & STAGFLATION
 Reflation – is a moderate degree of
inflation that is deliberately undertaken to
relieve depression
 Stagflation – a situation in which a high
rate of inflation prevails simultaneously
with a high rate of unemployment or
stagnant economic condition. It is a
combination of inflation & stagnation

17. RECESSION:
 The usual dictionary definition is ‘a period
of reduced economic activity’.
 In macroeconomics , a recession is a
decline in a country's gross domestic
product (GDP), or negative real economic
growth, for two or more successive
quarters of a year .

18. CAUSES OF INFLATION -
 A currency crisis , which is also called a
balance-of-payments crisis , occurs when
the value of a currency changes quickly,
undermining its ability to serve as a
medium of exchange or a store of value .
 An energy crisis is any great bottleneck (or
price rise ) in the supply of energy
resources to an economy . An energy crisis
may be referred to as an oil crisis ,
petroleum crisis , energy shortage ,
electricity shortage or electricity crisis.

19. CONTINUATION-
 In under consumption , recessions and
stagnation arise due to inadequate
consumer demand >the amount produced .
 In economics , overproduction refers to
supply > demand of products in market .
This leads to lower prices and / or unsold
goods .

20. CONCLUSION:
25 YEARS ANNUAL 2% INFLATION RATE
$ 3.50 $5.74

21. SET ASSIDE MONEY TO GROW YOUR SAVINGS FASTER
THAN THE RATE OF INFLATION
0
200
400
600
800
1000
1200
1400
1600
1800
TODAY 10 20
$1600
$1231
$1009
Inflation affects the value of our savings