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INFLATION
By
Shivani pandey
Pooja Agarwal
Rahul singh
Akash sharma
Sumit singh
PGDM 2
DEFINATION :
“inflation is an increase in the quantity of purchasing
power , - Gregory
Inflation is the stage of too much money chasing too few
goods - Coulbourn
MEANING :
Inflation is considered a global phenomenon . It takes place because of
rapidly rising prices of goods and services , resulting in the decline of the
value of money.
The rate at which the general level of prices for goods and services is
rising , and , subsequently , purchasing power is falling
Theories of inflation
There are two causes of inflation
1.Demand pull inflation
2.Cost push inflation
DEMAND PULL INFLATION
• This type of inflation happens when the aggregate demand
increases more then the supply
• Businesses respond to high demand by raising prices to
increases their profit margin
COST PUSH INFLATION
• When cost of production increases the price level
automatically increases
• Cost push inflation is mainly caused due to the following
factors
 increases in wages
 increases in cost of raw materials
 increased cost of imported components
Types of inflation
Open
inflation
Suppressed
inflation
Galloping
inflation
Creeping
inflation
Hyper
inflation
Open inflation
The rate where costs rise due to economic trends of spending
products and services.
Suppressed inflation
Existing inflation disguised by government price controls or
other interferences in the economy such as subsidies . Such
suppression , nevertheless , can only be temporary because no
governmental measure can completely contain accelerating
inflation in the long run . It is also called repressed inflation.
Galloping inflation
Very rapid inflation which is almost impossible to reduce.
Creeping inflation
Circumstances where the inflation of a nation increases
gradually , but continually, over time . This tends to be a typically
pattern for many nations. Although the increase is relatively
small in the short-term , as it continues over the time the effect
will become greater and greater
Hyper inflation
Hyper inflation is caused mainly by excessive deficit
spending ( financed by printing more money ) by a
government , some economist believe that social
breakdown leads to hyper inflation ( not vice versa ) , and
that its roots lie in political rather then economic causes
How Inflation is calculated in India
Wholesale Price Index (WPI) according to which, a total of 676 commodities
have been chosen and divided into three categories, all of which have a
different weight in inflation.
Out of which 102 of these 676 commodities belong to the category of
“Primary (weight 20.12%) while 19 belong to “Fuel and Power” (weight
14.91%) group. The remaining 555 items belong to the “Manufactured
Product” (weight 64.97%) group.
Consumer Price Index (CPI)- Current CPI = Current item price x Base year
The elementary factor that governs inflation is the variation in supply and
demand. Inflation is caused when an increase in demand is not met with an
increase in supply.
Causes of Inflation
 Population - The population of India has been on a continuous rise. The
growth rate of the essential goods and commodities (like food, oil, land etc.)
has not been able to match our population growth. Factors like increase in the
cost of land due to population growth also lead to an increase in the cost of
production.
 Unbalanced economic growth - The Indian economy has been growing at a
fast rate for the last few years. But this economic growth has not been
balanced. The contributions towards economic growth from the primary
(agriculture), secondary (industry) and tertiary (services) sectors are 17.2%,
26.4% and 56.4% respectively. So the growth in the primary or agricultural
output has been way less than average. Due to this we are required to import a
good quantity of basic goods and commodities for consumption. The prices of
these imported goods and commodities have been on the rise due to a weak
INR.
Effects of Inflation
Effect depends on the speed of inflation and the
nature of the economy
• Rising prices of imports
• Lower national saving
• Redistribution of income and wealth
• Collapse of monetary system
• Adverse impact socially and politically
• Discourages investment & savings
• Higher interest / income tax rates
HOW TO CONTROL INFLATION
 Monetary measures
 Fiscal measures
 Other measures
Monetary measures
• Credit control
• Demonetization of currency
• Issue of new currency
Fiscal measures
• Increases in taxes
• Increases in savings
• Reduction in unnecessary Expenditure
Other measures
• To increase production
• Rational wage policy
• Price control
THANK YOU

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Inflation

  • 1. INFLATION By Shivani pandey Pooja Agarwal Rahul singh Akash sharma Sumit singh PGDM 2
  • 2. DEFINATION : “inflation is an increase in the quantity of purchasing power , - Gregory Inflation is the stage of too much money chasing too few goods - Coulbourn MEANING : Inflation is considered a global phenomenon . It takes place because of rapidly rising prices of goods and services , resulting in the decline of the value of money. The rate at which the general level of prices for goods and services is rising , and , subsequently , purchasing power is falling
  • 3. Theories of inflation There are two causes of inflation 1.Demand pull inflation 2.Cost push inflation
  • 4. DEMAND PULL INFLATION • This type of inflation happens when the aggregate demand increases more then the supply • Businesses respond to high demand by raising prices to increases their profit margin COST PUSH INFLATION • When cost of production increases the price level automatically increases • Cost push inflation is mainly caused due to the following factors  increases in wages  increases in cost of raw materials  increased cost of imported components
  • 6. Open inflation The rate where costs rise due to economic trends of spending products and services. Suppressed inflation Existing inflation disguised by government price controls or other interferences in the economy such as subsidies . Such suppression , nevertheless , can only be temporary because no governmental measure can completely contain accelerating inflation in the long run . It is also called repressed inflation.
  • 7. Galloping inflation Very rapid inflation which is almost impossible to reduce. Creeping inflation Circumstances where the inflation of a nation increases gradually , but continually, over time . This tends to be a typically pattern for many nations. Although the increase is relatively small in the short-term , as it continues over the time the effect will become greater and greater
  • 8. Hyper inflation Hyper inflation is caused mainly by excessive deficit spending ( financed by printing more money ) by a government , some economist believe that social breakdown leads to hyper inflation ( not vice versa ) , and that its roots lie in political rather then economic causes
  • 9. How Inflation is calculated in India Wholesale Price Index (WPI) according to which, a total of 676 commodities have been chosen and divided into three categories, all of which have a different weight in inflation. Out of which 102 of these 676 commodities belong to the category of “Primary (weight 20.12%) while 19 belong to “Fuel and Power” (weight 14.91%) group. The remaining 555 items belong to the “Manufactured Product” (weight 64.97%) group. Consumer Price Index (CPI)- Current CPI = Current item price x Base year The elementary factor that governs inflation is the variation in supply and demand. Inflation is caused when an increase in demand is not met with an increase in supply.
  • 10. Causes of Inflation  Population - The population of India has been on a continuous rise. The growth rate of the essential goods and commodities (like food, oil, land etc.) has not been able to match our population growth. Factors like increase in the cost of land due to population growth also lead to an increase in the cost of production.  Unbalanced economic growth - The Indian economy has been growing at a fast rate for the last few years. But this economic growth has not been balanced. The contributions towards economic growth from the primary (agriculture), secondary (industry) and tertiary (services) sectors are 17.2%, 26.4% and 56.4% respectively. So the growth in the primary or agricultural output has been way less than average. Due to this we are required to import a good quantity of basic goods and commodities for consumption. The prices of these imported goods and commodities have been on the rise due to a weak INR.
  • 11. Effects of Inflation Effect depends on the speed of inflation and the nature of the economy • Rising prices of imports • Lower national saving • Redistribution of income and wealth • Collapse of monetary system • Adverse impact socially and politically • Discourages investment & savings • Higher interest / income tax rates
  • 12. HOW TO CONTROL INFLATION  Monetary measures  Fiscal measures  Other measures
  • 13. Monetary measures • Credit control • Demonetization of currency • Issue of new currency Fiscal measures • Increases in taxes • Increases in savings • Reduction in unnecessary Expenditure Other measures • To increase production • Rational wage policy • Price control