This document discusses inflation in India. It defines inflation as a sustained increase in prices or reduction in the value of money. Some key points: - Common indicators of inflation in India include the Wholesale Price Index, Consumer Price Index, and GDP deflator. - Causes of inflation include demand-pull inflation, cost-push inflation, and factors like increased money supply, population growth, and indirect taxes. - Effects of high inflation include slowed economic growth, impacts on fixed-income groups, and balance of payments issues. - Government policies to control inflation involve price controls, monetary policy to manage money supply and interest rates, and fiscal policy like public spending, debt, taxes, and

1. INFLATION
Class — 11

2. SYNOPSIS
 Introduction
 Definition
 Indicators of Inflation
 Trends of Inflation
 Causes of Inflation
 Effects of Inflation
 Government Policies to check Inflation

3. Introduction
 Inflation is defined as a sustained increase in
price level or reduced value of money.
 Inflation occurs when the level of currency of
a country exceeds the level of production.
 Value of money depreciates with the
occurrence of inflation.

4. How the value of money falls?
Year 1 Year 2
Amount
Price

5. Definition
“Inflation is State in which the Value of Money is
Falling and the Prices are rising.”
– C. Crowther
In Economics, inflation refers to general rise in
prices measured against a standard level of
purchasing power.

6. Indicators of Inflation
Wholesale Price Index (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.
Simple calculation:
(WPI of end of year – WPI of beginning of year) / WPI
of beginning of year x 100

7. Consumer Price Index
 Consumer Price Index
A comprehensive measure used for
estimation of price changes in a basket of
goods and services representative of
consumption expenditure in an economy
 Consumer Price Index =
[Current Period Price of the Basket / Base
Period Price of the Basket] *100

8. GDP Deflator
 The GDP Deflator is a price index that
measures inflation or deflation in an
economy by calculating a ratio of nominal
GDP to real GDP
 GDP = [Nominal GDP/Real GDP] *100

9. Trends of Inflation
Average Inflation Inflation Average Inflation Inflation
CPI India 2017 1.86 % CPI India 2007 6.39 %
CPI India 2016 4.97 % CPI India 2006 5.79 %
CPI India 2015 5.88 % CPI India 2005 4.25 %
CPI India 2014 6.37 % CPI India 2004 3.77 %
CPI India 2013 10.92 % CPI India 2003 3.81 %
CPI India 2012 9.30 % CPI India 2002 4.31 %
CPI India 2011 8.87 % CPI India 2001 3.77 %
CPI India 2010 12.11 % CPI India 2000 4.02 %
CPI India 2009 10.83 % CPI India 1999 4.84 %
CPI India 2008 8.32 % CPI India 1998 13.17 %

10. Causes of Inflation
Inflation is a result of a mismatch between
demand and supply in the economy.
Main causes are:
1.Demand Pull Inflation
2.Cost Push Inflation

11. Other Causes of Inflation
 Increase in Money Supply
 Deficit Financing
 Rise in Population
 Fall in Production
 Increase in Indirect Taxes (sales tax, excise
duty, custom duty)
 Credit Expansion
 Black Money
 And so on…

12. Problems Caused by Inflation
 Process of growth slows down
 Adverse effect on the people with fixed
income
 Increase in the cost of project
 Adverse impact on balance of payments
 Economic stagnation
 Wage price spiral and so on

13. Government Policies to Check
Inflation
1. Price Policy
2. Monetary Policy
3. Fiscal Policy

14. 1. Price Policy
It is the policy of directing, regulating and controlling the
prices of goods and services in the economy.
It includes following instruments:
1.Price control of essential goods:
Ceiling price/ maximum price that producer can charge
2.Procurement price and support price:
Price fixed by the Govt. to procure farmer produce for
PDS. Price offered by government to purchase surplus
output.

15. 2. Monetary Policy
In this, the government controls the supply of money and the rate of
interest in the economy.
It includes following instruments:
1.Supply of Money: Controlling money supply to lower purchasing power
of people and lowering demand leading to lesser inflation
2.Rate of Interest: High bank rate > high market rate of interest > lower
demand for loans > lesser expenditure > reduces inflation
3.Supply of credit: Includes - increasing CRR, selling government security,
increase in the margin of loan and credit rationing

16. 3. Fiscal Policy
It is the revenue and expenditure policy of the government.
It includes following instruments:
1.Public expenditure: keeping an eye on government expenditure.
2.Public debt: increases through public borrowing causing less
purchasing power.
3.Taxes: increased in order to lower disposable income, lower
purchasing power.
4.Budget policy: Surplus budget policy adopted, where expenditure is
reduced while revenue is increased. This causes reduction in the
demand.

17. Thank you!