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    Inflation 161202135538

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    Sidhartha Mohapatra
    This document discusses inflation including its definition, measurement, types, causes and effects. Inflation is defined as a sustained increase in the general price level over time, resulting in a loss of purchasing power. It is typically measured by changes in the consumer price index or wholesale price index. The two main types are cost-push inflation, caused by rising production costs, and demand-pull inflation caused by excess demand. Key causes include increases in wages, import prices, taxes and monetary supply. Effects are unevenly distributed but include impacts on incomes, savings and economic growth. Countries aim to control inflation through monetary, fiscal and other supply-side policies.

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    Inflation 161202135538

    Uploaded by

    Sidhartha Mohapatra
    39 views18 pages
    This document discusses inflation including its definition, measurement, types, causes and effects. Inflation is defined as a sustained increase in the general price level over time, resulting in a loss of purchasing power. It is typically measured by changes in the consumer price index or wholesale price index. The two main types are cost-push inflation, caused by rising production costs, and demand-pull inflation caused by excess demand. Key causes include increases in wages, import prices, taxes and monetary supply. Effects are unevenly distributed but include impacts on incomes, savings and economic growth. Countries aim to control inflation through monetary, fiscal and other supply-side policies.

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    It is a complete concept based paper on inflation

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    This document discusses inflation including its definition, measurement, types, causes and effects. Inflation is defined as a sustained increase in the general price level over time, resulting in a loss of purchasing power. It is typically measured by changes in the consumer price index or wholesale price index. The two main types are cost-push inflation, caused by rising production costs, and demand-pull inflation caused by excess demand. Key causes include increases in wages, import prices, taxes and monetary supply. Effects are unevenly distributed but include impacts on incomes, savings and economic growth. Countries aim to control inflation through monetary, fiscal and other supply-side policies.

    Copyright:

    © All Rights Reserved
    Download as PPTX, PDF, TXT or read online from Scribd
    Download as pptx, pdf, or txt
    39 views18 pages

    Inflation 161202135538

    Uploaded by

    Sidhartha Mohapatra
    This document discusses inflation including its definition, measurement, types, causes and effects. Inflation is defined as a sustained increase in the general price level over time, resulting in a loss of purchasing power. It is typically measured by changes in the consumer price index or wholesale price index. The two main types are cost-push inflation, caused by rising production costs, and demand-pull inflation caused by excess demand. Key causes include increases in wages, import prices, taxes and monetary supply. Effects are unevenly distributed but include impacts on incomes, savings and economic growth. Countries aim to control inflation through monetary, fiscal and other supply-side policies.

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    © All Rights Reserved
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    Download as pptx, pdf, or txt
    of 18

    INFLATIO

    N
    •What is inflation?
    •Measurement of Inflation
    •Types of Inflation
    •Causes and Effects of Inflation
    •Control of Inflation
    •Inflation and Economic Developement
    •Inflation in India
    What is
    Inflation?
    In economics, inflation is a sustained increase
    in the general price level of goods and services in
    an economy over a period of time.
    Consequently, inflation reflects a reduction in
    the purchasing power per unit of money – a loss
    of real value in the medium of exchange and unit
    of account within the economy.
    Measuring
    Inflation
    • Inflation rate, the annualized percentage change in a
    general price index, usually the consumer price index, over
    time.
    • If the price level in the current year is ‘P1’ & in the previous
    year is ‘Po’, then inflation for the current year is

    (P1 – Po)/ Po x 100


    CPI and
    WPI measure used for estimation of
    • CPI: It is a comprehensive
    price changes in a basket of goods and services representative
    of consumption expenditure in an economy is called consumer
    price index. The percentage change in this index over a period
    of time gives the amount of inflation over that specific period,
    i.e. the increase in prices of a representative basket of goods
    consumed.
    • WPI: represents the price of goods at a wholesale stage i.e.
    goods that are sold in bulk and traded between organizations
    instead of consumers. WPI is used as a measure of inflation in
    some economies. Inflation rate is the difference between WPI
    calculated at the beginning and the end of a year. The
    percentage increase in WPI over a year gives the rate of
    inflation for that year.
    Other widely used price
    indices for calculating price
    inflation
    • Commodity price indices : It is a fixed-weight index or
    (weighted) average of selected commodity prices, which may be
    based on spot or futures prices. It measures the price of a
    selection of commodities.
    • GDP deflator : is a measure of the price of all the goods and services
    included in gross domestic product (GDP).
    • Asset price inflation : is an undue increase in the prices of real or
    financial assets, such as stock (equity) and real estate.
    • Core price indices : The "core" PCE price index is defined as personal
    consumption expenditures (PCE) prices excluding food and energy
    prices. The core PCE price index measures the prices paid by
    consumers for goods and services without the volatility caused by
    movements in food and energy prices to reveal underlying inflation
    trends. This is because food and oil prices can change quickly due to
    changes in supply and demand conditions in the food and oil
    markets, it can be difficult to detect the long run trend in price levels
    when those prices are included.
    Causes of
    inflation
    1. Cost –Push
    Inflation
    • Cost push inflation occurs when we experience rising prices due to higher
    costs of production and higher costs of raw materials. Cost push inflation is
    determined by supply side factors. Cost-push inflation can lead to lower
    economic growth and often causes a fall in living standards, though it often
    proves to be temporary.

    • CAUSES OF COST-PULL INFLATION:


    1. Rising wages
    2. Import prices
    3. Raw material prices and commodity costs
    4. Profit push inflation
    5. Declining productivity
    6. Higher taxes
    Diagram Showing Cost Push
    Inflation
    • In the diagram X-axis represents the year for which GDP is calculated
    • Y-axis : represents the price level
    • While SRAS represents the Short Run Aggregate Supply.

    • Short run aggregate supply curve shifts to the left, causing higher price level and
    lower real GDP.
    • In 2011/12, the UK experienced a rise in cost-push

    Graph
    inflation, partly due to the depreciation in the
    Pound against the Euro. (also due to higher taxes)

    showing
    Infation in UK
    2.Demand-pull
    inflation
    •Demand pull inflation occurs when aggregate demand is
    growing at an unsustainable rate leading to increased
    pressure on scarce resources and a positive output gap
    • When there is excess demand, producers can raise their prices
    and achieve bigger profit margins
    • Demand-pull inflation becomes a threat when an economy
    has experienced a boom with GDP rising faster than the long-
    run trend growth of potential GDP
    • Demand-pull inflation is likely when there is full employment
    of resources and SRAS is inelastic
    Causes of Demand-Pull
    Inflation
    • A depreciation of the exchange rate increases the price of imports and
    reduces the foreign price of a country's exports. If consumers buy fewer
    imports, while exports grow, AD in will rise – and there may be a
    multiplier effect on the level of demand and output
    • Higher demand from a fiscal stimulus e.g. lower direct or indirect taxes
    or higher government spending. If direct taxes are reduced, consumers
    have more disposable income causing demand to rise. Higher
    government spending and increased borrowing creates extra demand in
    the circular flow
    • Monetary stimulus to the economy: A fall in interest rates may
    stimulate too much demand – for example in raising demand for loans
    or in leading to house price inflation. Monetarist economists believe
    that inflation is caused by “too much money chasing too few goods" and
    that governments can lose control of inflation if they allow the financial
    system to expand the money supply too quickly.
    • Fast growth in other countries – providing a boost to UK exports
    overseas. Export sales provide an extra flow of income and spending
    into the UK circular flow – so what is happening to the economic cycles
    of other countries definitely affects the UK
    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
    • 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
    Effects of
    Inflation
    General
    Effect
    • An increase in the general level of prices implies a decrease in the
    purchasing power of the currency. The effect of inflation is not distributed
    evenly in the economy, and as a consequence there are hidden costs to
    some and benefits to others from this decrease in the purchasing power of
    money.
    • Effect On Redistribution Of Income:
    (1) Debtors and Creditors,: debtors gain and creditors lose.
    (2) Salaried Persons: lose
    (3) Wage Earners: may gain or lose
    (4) Fixed Income Group: lose
    (5) Equity Holders or Investors: gain
    (6) Businessmen: gain
    (7) Agriculturists: gain or lose
    Positive Effect Of
    Inflation
    1. Deflation (a fall in prices – negative inflation) is very harmful. When
    prices are falling people are reluctant to spend money because they
    are concerned that prices will be cheaper in the future, therefore,
    they keep delaying purchases.
    2. Moderate inflation enables adjustment of wages: example, it
    may be difficult to cut nominal wages .But, if average wages are
    rising due to moderate inflation, it is easier to increase the wages
    of productive workers;
    3. Inflation can boost growth. At times of very low inflation the
    economy may be stuck in a recession. Arguably targeting a higher
    rate of inflation can enable a boost in economic growth. (Although
    this view is controversial).
    Control of
    Inflation
    1. Monetary Measures: Monetary measures aim at reducing money incomes.
    (a) Credit Control
    (b) Demonetisation of Currency
    (c) Issue of New Currency
    2. Fiscal Measures: Fiscal measures are highly effective for controlling government
    expenditure, personal consumption expenditure, and private and public investment.
    (a) Reduction in Unnecessary Expenditure
    (b) Increase in Taxes
    (c) Increase in Savings
    (d) Surplus Budgets
    (e) stop repayment of public debt
    3. Other Measures: are those which aim at increasing aggregate supply and reducing
    aggregate demand directly.
    (a) Increase Production
    (b) Adopt Rational Wage Policy
    (c) Check Price Control
    (d) Rationing
    Inflation in
    India
    • In India ,CPI (combined) is used for calculation of
    inflation.
    • Current inflation in India: august 2016:- 5.30
    %
    • In India WPI is published on a weekly basis and
    CPI on monthly basis.
    THANKYOU

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