inflation in india

1. Inflation in india 2/24/2010 10:33 AM 1 Ghanshyamiilmgurgaon

2. INFLATION “Inflation is nothing more than a sharp upward rise in price level.” Too much money chasing, too few goods.” Inflation is a state in which the value of money is falling i.e. price are rising.” 2/24/2010 10:33 AM 2 Ghanshyam iilm gurgaon

3. KINDS OF INFLATION On the basis of rate of inflation On the basis of degree of control On the basis of causes Others 2/24/2010 10:33 AM 3 Ghanshyam iilm gurgaon

4. CAUSES OF INFLATION Demand pull inflation Cost push inflation 2/24/2010 10:33 AM 4 Ghanshyam iilm gurgaon

5. Demand-pull Inflation S D Ep1 Ep D1 Eq1 Eq 2/24/2010 10:33 AM 5 Ghanshyam iilm gurgaon

6. S1 D S E1 Ep1 E Cost-push Inflation 2/24/2010 10:33 AM 6 Ghanshyam iilm gurgaon

7. HOW TO CONTROL INFLATION Monetary Measures Fiscal Measures Other Measures 2/24/2010 10:33 AM 7 Ghanshyam iilm gurgaon

8. Monetary Measures Credit Control Demonetization of Currency Issue of New Currency 2/24/2010 10:33 AM 8 Ghanshyam iilm gurgaon

9. Fiscal Measures Reduction in Unnecessary Expenditure Increase in Taxes Increase in Savings Surplus Budgets Public Debt 2/24/2010 10:33 AM 9 Ghanshyam iilm gurgaon

10. OTHER MEASURES To Increase Production Rational Wage Policy Price Control 2/24/2010 10:33 AM 10 Ghanshyam iilm gurgaon

11. How is it Measured? Consumer Price Index Wholesale Price Index 2/24/2010 10:33 AM 11 Ghanshyam iilm gurgaon

12. Consumer Price Index CPI is a measure estimating the average price of consumer goods and services purchased by households. CPI measures a price change for a constant market basket of goods and services from one period to the next within the same area (city, region, or nation). It is a price index determined by measuring the price of a standard group of goods meant to represent the typical market basket of a typical urban consumer. The percent change in the CPI is a measure estimating inflation. 2/24/2010 10:33 AM 12 Ghanshyam iilm gurgaon

13. Wholesale Price Index WPI was published in 1902,and was one of the economic indicators available to policy makers until it was replaced by most developed countries by the CPI market. index in the 1970. WPI is the index that is used to measure the change in the average price level of goods traded in wholesale market. Some countries (like India and The Philippines) use WPI changes as a central measure of inflation. However, India and the United States now report a producer price index instead. 2/24/2010 10:33 AM 13 Ghanshyam iilm gurgaon

14. Problems with WPI In present day service sector plays a key role in Indian economy. Consumers are spending loads of money on services like education and health. And these services are not incorpated in calculation of WPI. WPI measures general level of price changes either at level of wholesaler or at the producer and does not take into account the retail margins. Therefore we see here that WPI does give the true picture of inflation. 2/24/2010 10:33 AM 14 Ghanshyam iilm gurgaon

15. Problems with WPI WPI is supposed to measure impact of prices on business. “But we use it to measure the impact on consumers. Many commodities not consumed by consumers get calculated in the index. 2/24/2010 10:33 AM 15 Ghanshyam iilm gurgaon

16. Weight edge to CPI & WPI 2/24/2010 10:33 AM 16 Ghanshyam iilm gurgaon

17. Inflation rate PI for a certain year - PI for a comparative year X 100 PI for a comparative year 2/24/2010 10:33 AM 17 Ghanshyam iilm gurgaon

18. INFLATION RATES 2/24/2010 10:33 AM 18 Ghanshyam iilm gurgaon

19. EFFECTS OF INFLATION They add inefficiencies in the market, and make it difficult for companies to budget or plan long-term. Uncertainty about the future purchasing power of money discourages investment and saving. 2/24/2010 10:33 AM 19 Ghanshyam iilm gurgaon

20. EFFECTS OF INFLATION There can also be negative impacts to trade from an increased instability in currency exchange prices caused by unpredictable inflation. Higher income tax rates. Inflation rate in the economy is higher than rates in other countries; this will increase imports and reduce exports, leading to a deficit in the balance of trade. 2/24/2010 10:33 AM 20 Ghanshyam iilm gurgaon

21. EXAMPLE Increase in the price of wheat Increase in the price of world oil Increase in the price of rice Increase in the price of CNG 2/24/2010 10:33 AM 21 Ghanshyam iilm gurgaon

22. T 2/24/2010 10:33 AM 22 Ghanshyam iilm gurgaon