The document discusses inflation including its definition, calculation, causes, and effects. It provides India's inflation rate in January 2015 of 5.11% and discusses how falling oil prices may lead to further interest rate cuts. It also discusses a drop in the US producer price index of 0.8% in January 2015, its biggest decline in over 5 years, and China's inflation rate falling to a 5-year low of 0.8% in January 2015, fueling fears of deflation. Strategies for tackling inflation include increasing interest rates to dampen demand, encouraging business expansion to increase supply, controlling money supply through monetary policy, and linking wages to productivity.

1. INFLATION

2.  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. As inflation rises, every
dollar you own buys a smaller
percentage of a good or service.

5. CALCULATION OF THE
INFLATION RATE
Between any 2 years, one of which is the base year, the
rate of inflation is the difference in the 2 index numbers.
Between any 2 years, neither of which is the base year,
the rate of inflation is the difference in the 2 index
numbers divided by the earlier index number X 100.
The base year is given the index 100 and is used as a
reference point for comparison.
The Annual inflation rate is:
_________________________
last year’s CPI
X 100this year’s CPI – last year’s CPI

6.  The inflation rate in India was recorded
at 5.11 percent in January of 2015.
Inflation Rate in India averaged 8.87
percent from 2012 until 2015, reaching
an all time high of 11.16 percent in
November of 2013 and a record low of
4.38 percent in November of 2014.
Inflation Rate in India is reported by the
Ministry of Statistics and Programme
Implementation (MOSPI), India.

7. WHY IS INFLATION
BAD?It reduces the power of your money to make purchases.
It causes people on fixed incomes to experience a fall in their
real incomes.
It causes money tied up in savings to lose real value if the
rate of interest earned is not at least equal to the rate
of inflation.
It makes our exports less competitive and may cause
people to buy the comparatively cheaper imports
rather than pay rising prices.

9. CAUSES OF
INFLATION•When the demand for goods and services outstrips the
economy’s capacity to produce them (i.e. excess demand over
supply) then demand will pull up prices.
•Excess demand over supply can arise at times of rising
general income levels.
• Increases in the cost of factor inputs eg raw materials, wages
etc, when passed on to the consumer will push up prices.
•A growth in the money supply eg through excessive lending
by the financial sector will reduce the value of the
currency circulating round the economy.

10.  It is an important performance indicator.
 It measures the rate of change in the general
level of prices.
 It indicates changes in the purchasing power of
the pound.
 It is calculated by using Consumer Prices
Index.
 This index features the most common items
purchased by average families (basket of
goods) and monitors each month, changes in
their prices.
.

12. STUDY

13.  India's wholesale price index fell for the second
time in three months in January as oil prices
slumped, bolstering prospects for further
interest rate cuts by the Reserve Bank of India
(RBI).
 The wholesale price index (WPI) unexpectedly
fell 0.39 percent last month from the same
period a year earlier, its biggest decline since
June 2009, government data showed on
Monday.
 The fuel price index tumbled 10.69 percent.

14. •Analysts had predicted a 0.4 percent year-on-year gain
in wholesale prices, slightly faster than a provisional 0.11
percent increase in December.
•The reading for November WPI inflation was revised
down to -0.17 percent from 0.0 percent earlier.
•The data comes days after annual consumer inflation
came in at 5.11 percent, well below the central bank's
medium-term target of 6 percent, and the trade deficit
shrunk to a 11-month low.
•While the RBI mainly focuses on consumer inflation to
set its lending rates, analysts say improving trade gap and
falling wholesale prices will help moderate retail inflation
in the months ahead by providing stability to the rupee
and easing input costs for firms.

16.  U.S. producer prices recorded their biggest drop in
more than five years in January as the cost of
energy and a range of other goods tumbled, hinting
at a disinflationary trend that could argue against
the Federal Reserve raising interest rates.
 Other reports showed housing starts fell last
month, while manufacturing output rose
marginally, signs of moderate economic growth
early in the first quarter. "That, along with

17. persistently cool measures on inflation, will complicate decisions on
the timing of a rate hike by the Fed. There is a clear consensus to
obtain a liftoff this year, but the timing is still cloudy," said Diane
Swonk, chief economist at Mesirow Financial in Chicago.
The Labor Department said its producer price index for final demand
fell 0.8 percent, the biggest drop since the revamped series started in
November 2009, after dipping 0.2 percent in December. It was the
third straight month of decline in the PPI.
In the 12 months through January, producer prices were unchanged,
the weakest reading since November 2010 when the new year-on-year
series started, and braking sharply after a 1.1 percent rise in
December.
Economists had forecast the PPI declining only 0.4 percent last month
and gaining 0.3 percent from a year ago.
The decline in producer prices spilled over to the so-called core PPI as
a strengthening dollar dampens imported inflation.
A key measure of underlying producer price pressures, which
excludes

18. food, energy and trade services, fell a record 0.3 percent last month
after edging up 0.1 percent in December.
While the Fed, which has a 2 percent inflation target, views the tame
price environment as transitory, the broad-based weakness could
cause discomfort among some policymakers.

20.  The inflation rate in China was recorded
at 0.80 percent in January of 2015.
Inflation Rate in China averaged 5.65
percent from 1986 until 2015, reaching an
all time high of 28.40 percent in February
of 1989 and a record low of -2.20 percent
in April of 1999. Inflation Rate in China is
reported by the National Bureau of
Statistics of China.

21. Chinese inflation plunged to 0.8% in January, its lowest
level for more than five years, official data showed on
Tuesday, fuelling fears the world’s second-largest economy
is on the brink of a deflationary spiral.
The rise in the consumer price index (CPI) was sharply
down from the 1.5% recorded in December, and was lower
than the 1% expected by economists.
It was also the weakest number since 0.6% in November
2009.
Moderate inflation can be a boon to consumption as it
encourages consumers to buy before prices go up, while
falling prices encourage shoppers to delay purchases and
companies to put off investment, both of which can hurt
growth.

24. STRATEGIES FOR
TACKLING INFLATION
It Dampen down the level of demand by making borrowing
and credit more expensive.
Encourage increased capacity by encouraging business to
expand and new business to set up eg Enterprise Allowances,
Grants etc.
Keep tight control of the money supply through reduced
lending, increasing reserve asset ratio and higher interest rates.
Ensure wage rises are accompanied by productivity
agreements.

25.  THANK YOU
 BY- ANSHUL
 CLASS-XI