Inflation

Inflation

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  INFLATION By Shivani pandey Pooja Agarwal Rahulsingh Akash sharma Sumit singh PGDM 2
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  DEFINATION : “inflation isan 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
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  Theories of inflation Thereare two causes of inflation 1.Demand pull inflation 2.Cost push inflation
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  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
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  Types of inflation Open inflation Suppressed inflation Galloping inflation Creeping inflation Hyper inflation
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  Open inflation The ratewhere 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.
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  Galloping inflation Very rapidinflation 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
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  Hyper inflation Hyper inflationis 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
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  How Inflation iscalculated 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.
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  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.
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  Effects of Inflation Effectdepends 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
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  HOW TO CONTROLINFLATION  Monetary measures  Fiscal measures  Other measures
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  Monetary measures • Creditcontrol • 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
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  THANK YOU