The overall general upward price movement of goods and services in an economy (often caused by a increase in the supply of money), usually as measured by the Consumer Price Index and the Producer Price Index. Over time, as the cost of goods and services increase, the value of a dollar is going to fall because a person wont be able to purchase as much with that dollar as he/she previously could.
While the annual rate of inflation has fluctuated greatly over the last half century, ranging from nearly zero inflation to 23% inflation, the actively tries to maintain a specific rate of inflation, which is usually 2-3% but can vary depending on circumstances. opposite of deflation.
Economic Situation of continuously rising Price level and the falling value of money. According to Prof. Rowan, “ Inflation is the Process of Price Increase.” Harry johnson defines inflation as a sustained rise in Prices. Crowther Defines “inflation as a state in which the value of money is falling i.e. Prices are rising”
Continuously Rising Price Trend, whether it is measured through wholesale Price Index (WPI) or Consumer Price Index (CPI) The money Supply is in excess of requisite Production and exchange needs of the economy. There is over expansion of credit by the banks. There is a lack of financial discipline on the part of the government.
A large number of commodities are in short supply. The rate of return of speculative hoarding of commodities, Precious metals like gold and silver and investments in immovable Properties. Interest rates are Higher Labour Unrest,Strikes,lock-outs etc. Rising labour costs Higher indirect taxes imposed by the government.
Means Low Inflation/Reasonable/Fair It is mild and tolerable form of Inflation It occurs when Prices are rising slowly When the rate of Inflation is less than 10 per cent annually. It means Price level rising with a limit of 4 per cent per annum.
There is a single digit inflation rate (less than 10 per cent )annually. It does not disrupt the economic balance It is regarded as stable inflation in which the relative prices do not get far out of line. People’s expectations remain more or less stable under moderate inflation. Under low inflation rate the real interest rate is not too much low or negative so many can serve its role as a store of value without difficulty.
When the movement of Price accelerates rapidly, running inflation emerges. Running inflation may record more than 100 per cent rise in Prices over a decade. Therefore when Prices rise by more than 10 per cent a year , here running inflation occurs. Galloping Inflation is really a serious Problem and it causes economic distortions and disturbances.
“When Prices are rising at double or triple digit rates of 20,100or 200 per cent a year, the situation may be described as galloping Inflation.” - By Samuelson
In this type of Inflation Prices rise every movement There is no limit to the height to which Prices might rise. It is a Out of control inflation with prices going up day-by-day. In quantitative terms, when Prices rise over 1000 per cent in a year it is called a hyper-inflation.
It represents the most Pathetic deterioration in People’s Purchasing power. It is apparently generated by a massive fiscal dislocation It is amplified by wage Price spiral The velocity of circulation of money increases very fast The real wages tend to decline fast The structure of relative prices of goods become highly unstable.
Over expansion of money supply Expansion of bank credit Deficit financing Ordinary Monetary factors: -High non development expenditure -Huge Plan investment -Black money -High Indirect taxes
Non monetary Factors: -A High Population growth -Natural calamities and bad weather condition -Speculation & hoarding -High Prices of Imports -Monopolies -Underutilization of resources
Effect on Production Distributional effect Effects on consumption and Welfare Other Economic Effects: Deterioration in savings Distortion of the budget Disturbance in Planning Lowering of international competitiveness Distortion of the exchange rate Social and Political consequences of inflation
Question: Find out the Current Inflation Rate of INDIA. In which Type of Inflation the Indian Inflation rate falls. Question: Suggest the measures to recover Inflation?