Inflation : Causes,Effects,Theories,Reasons,Control and Trends

1. Inflation
Akash Balram

2. What is Inflation ?
Increase in the prices of goods and services over time.
What is Inflation Rate ?
The percent increase or decrease in prices during a specified period

3. Causes of Inflation
Demand Pull Inflation Cost Push Inflation
When demand outpaces supply
for goods or services
When supply is restricted but
demand is not

4. How Inflation is calculated in India ?
Wholesale Price Index Consumer Price Index
A wholesale price index (WPI) is an index
that measures and tracks the changes in
the price of goods in the stages before the
retail level – that is, goods that are sold in
bulk and traded between entities or
businesses instead of consumers
The Consumer Price Index (CPI) is a
measure that examines the weighted
average of prices of a basket of consumer
goods and services, such as
transportation, food, and medical care
CPI - R CPI - U

5. Effects of Inflation
Effects Distribution of Income and
Wealth
Effects Production
Effects Income and Employment Effects Business and Trade
Effects Government Finance Effects Growth

6. How can Inflation be controlled ?
Fiscal Policy Monetary Policy
The government can increase taxes (such
as income tax and VAT) and cut spending.
This improves the government’s budget
situation and helps to reduce demand in
the economy
The Central bank could increase interest
rates. Higher rates make borrowing more
expensive and saving more attractive.

7. Reasons for Inflation in India
Rise in Crude Oil Prices Rise in Food Prices
Black Money GDP
Wage Rate Sub Prime Crisis

8. Market-Power Theory of Inflation
Conventional Demand-Pull Inflation
Structural Theories of Inflation
Theories of Inflation

9. Structural Theories of Inflation
• Mark-up Theory: Inflation cannot occur alone by demand and cost
factors, but it is the cumulative effect of demand-pull and cost-push
activities.
• Bottle-Neck Inflation: The direct relationship between wages and
prices of products is the main cause of inflation

10. 10
What is the healthy inflation rate ?
• 2 to 6 % is generally considered as health
inflation rate
-11.3%
Recorded the lowest
inflation rate in India
May , 1976
34.7%
India witnessed the highest
inflation rate.
October , 1974
4.62%
Current Inflation rate in
India
October , 2019
Inflation Trends in India
It is forecasted that the Inflation rate will be
varying till 2020 due to various government policies.

11. 11
Inflation Trends in India
General inflation based on different price indices (in per cent)

12. 12
Inflation Trends in India

13. 13
Inflation Trends in India