3. INTRODUCTION
• Inflation is an increase in
the overall level of prices.
• Inflation is not an increase
in the price of a specific
good or service relative to
the prices of other goods
and services.
5. • DEMAND PULL INFLATION
Demand-pull inflation is asserted to arise when aggregate demand in an economy
outpaces aggregate supply. It involves inflation rising as real gross domestic
product rises and unemployment falls, as the economy moves along the Phillips curve.
This is commonly described as "too much money chasing too few goods.“
• COST PUSH INFLATION
Cost-push inflation is a type of inflation caused by substantial increases in the cost of
important goods or services where no suitable alternative is available. It stands in
contrast to demand-pull inflation.
• STRUCTURAL INFLATION
Structural Inflation. Inflation that occurs because a government pursues an
excessively loose monetary policy. That is, if a central bank prints too much money or
keeps interest rates too low for too long, the value of each unit of currency drops more
than it would simply from increased demand.
6. • CREEPING INFLATION-Creeping or mild inflation is when prices rise 3
percent a year or less. According to the Federal Reserve, when prices
increase 2 percent or less it benefits economic growth. This kind of mild
inflation makes consumers expect that prices will keep going up. That
boosts demand. Consumers buy now to beat higher future prices.
That's how mild inflation drives economic expansion. For that reason,
the Fed sets 2 percent as its target inflation rate.
• WALKING INFLATION-This type of strong, or pernicious, inflation is
between 3-10 percent a year. It is harmful to the economy because it
heats up economic growth too fast. People start to buy more than they
need, just to avoid tomorrow's much higher prices. This drives demand
even further so that suppliers can't keep up. More important, neither
can wages. As a result, common goods and services are priced out of
the reach of most people.
TYPE OF INFLATION
7. GALLOPING INFLATION-When inflation rises to 10 percent or more, it wreaks
absolute havoc on the economy. Money loses value so fast that business
and employee income can't keep up with costs and prices. Foreign
investors avoid the country, depriving it of needed capital. The economy
becomes unstable, and government leaders lose credibility. Galloping
inflation must be prevented at all costs.
HYPER INFLATION-when prices skyrocket more than 50 percent a month. It
is very rare. In fact, most examples of hyperinflation have occurred only
when governments printed money to pay for wars. Examples of
hyperinflation include Germany in the 1920s, Zimbabwe in the 2000s, and
Venezuela in the 2010s. The last time America experienced hyperinflation
was during its civil war.
8. MEASUREMENTS OF INFLATION
• CPI-A Consumer Price Index measures changes in the price level
of a weighted average market basket of consumer
goods and services purchased by households.It is usually calculated
and reported by the Bureau of Economic Analysis and Statistics of a
country on a monthly and annual basis.
• WPI-The Wholesale Price Index (WPI) is the price of a
representative basket of wholesale goods and measure On wholesale
sale price.
9. REFLATION-Reflation is the act of
stimulating the economy by increasing the
money supply or by reducing taxes, seeking to
bring the economy back up to the long-term
trend, following a dip in the business cycle. It is
the opposite of disinflation, which seeks to return
the economy back down to the long-term trend.
DEFLATION-In economics, deflation is a
decrease in the general price level of goods and
services. Deflation occurs when the inflation rate
falls below 0%.
REFLATION
IMPORTANT FACT
10. INFLATION IN INDIA
•Inflation rate in India was
5.05% as of May 2019, as per
the Indian Ministry of Statistics
and Programme Implementation.
•Inflation rates in India are
usually quoted as changes in the
Wholesale Price Index (WPI), for
all commodities
•In India, CPI (combined) is
declared as the new standard for
measuring inflation (April 2014)
