FREE E-BOOK

Inflation
Economy & Social Issues (ESI) Notes

ForFOR
RBIRBI Grade B EXAM
& NABARD EXAMS
Inflation – ESI Notes Free Regulatory Bodies Exams Notes e-book

Inflation
ESI Notes for NABARD Gr. A & RBI Gr. B Exam

Definition
Inflation is the rate at which the general level of prices for goods and services is rising and,
consequently, the purchasing power of currency is falling.

Types of Inflation
Demand-Pull Rising demand in the economy
Inflation

Core Inflation Inflation rate excluding temporary

factors

Hyperinflation Monetary inflation occurring at a very

high rate

Cost-push Increase in cost e.g., rising oil prices

Inflation

Wage-Inflation Inflation caused by rising real wage

Imported Inflation is caused by the rising price of

Inflation imports e.g., due to devaluation

*Deflation
Deflation is a general decline in prices for goods and services, typically associated with a contraction
in the economy’s supply of money and credit. During deflation, the purchasing power of currency rises
over time.
Inflation – ESI Notes Free Regulatory Bodies Exams Notes e-book

*Stagflation
Stagflation is a condition of slow economic growth and relatively high unemployment, or economic
stagnation, accompanied by rising prices, or inflation. It can also be defined as inflation and a decline
in the gross domestic product (GDP).

Causes of Inflation
Government spending or Deficit financing by the government.

Government spending or Deficit financing by the government → When the government spends more
freely, prices go up → Due to fiscal stimulus → Increased borrowing → Depreciation of rupee →
Low unemployment rate → Increase in the prices of the goods (inflation) →The overall increase in
the cost of living

Inflation Trends in India

India inflation rate for 2017 3.33%, a 1.62% decline from 2016
India inflation rate for 2018 3.95%, a 0.62% increase from 2017
India inflation rate for 2019 3.72%, a 0.22% decline from 2018

India inflation rate for 2020 6.62%, a 2.9% increase from 2019

Calculation and Measures

Inflation is measured by a central government authority, which is in charge of adopting measures to
ensure the smooth running of the economy. In India, the Ministry of Statistics and Programme
Implementation measures inflation.

There are two main sets of inflation indices for measuring price level changes in India – the Wholesale
Price Index (WPI) and the Consumer Price Index (CPI).
• Inflation is the rise in the prices of goods and services. It’s calculated by tracking the increase
in prices of essentials.
• The primary index that tracks the change in retail prices of essential goods and services
consumed in the Consumer Price Index or CPI.
• The other index measures inflation is the Wholesale Price Index (WPI), While retail inflation
looks at the price at which the consumer buys products, WPI is measured based on prices at
the wholesale level.
Inflation – ESI Notes Free Regulatory Bodies Exams Notes e-book

*Consumer Price Index (CPI)

CPI is calculated by considering the retail price change of goods and services and by taking the average
weighted value of each item in the basket.

*Brief History of CPI

In 2013 CPI in India replaced the Whole Sale Price Index (WPI) as a main measure of inflation. It was
proposed by the Urjit Patel Committee to abolish WPI and introduce CPI in India, which exhibits the
hardships faced by the consumers due to the effect of inflation. The Reserve Bank of India (RBI) has
mandated using CPI as the sole indicator of inflation for its monetary policy.

*Wholesale Price Index

A wholesale price index (WPI) measures and tracks the changes in the price of goods before they reach
consumers: goods that are sold in bulk and traded between entities or businesses (rather than
consumers).

*CPI and WPI index Publishing Institution

Index Base Year Published by
CPI (Industrial 2001 Labour Bureau
Worker)
CPI 1986-87 Labour Bureau
(Rural Labour)

CPI 1986-87 Labour Bureau

(Agricultural
Labour)
CPI-U 2012 MOSPI
(Urban Population)

CPI-R 2012 MOSPI

(Rural Population)
WPI 2011-12 Office of
Economic
Affairs,
Ministry of
Commerce,
and Industry

*MOSPI-Ministry of Statics and Program Implementation

Inflation – ESI Notes Free Regulatory Bodies Exams Notes e-book

Good Inflation
Economists believe inflation comes about when the supply of money is greater than the demand for
money. Inflation is viewed as a positive when it helps boost consumer demand and consumption,
driving economic growth.
How Inflation is good for the economy?
• Erodes Purchasing Power
• Encourages Spending, Investing
• Raises the Cost of Borrowing
• Increases Growth
• Reduces Employment, Growth

Bad Inflation
Inflation is mostly regarded as bad because it usually comes with negative side effects in many
circumstances. Extremely high inflation is generally never good for both the economy and individuals
because it dramatically reduces the value of money.

How Inflation is Bad for the Economy?

• Inflation results in a higher rate of interest as central banks try to reduce the money supply by
increasing interest rates.
• Inflation hurts fixed income groups like salaried class people, pensioners, savers, and poor
people.
• Inflation makes the country products uncompetitive in international markets.
• Inflation if not controlled can lead to hyperinflation which is the worst-case scenario as it may
result in a complete breakdown of the economy.

How to Control Inflation?

• Fiscal Policy → Reducing Fiscal Deficit.
• Monetary Policy → Tightening Credit.
• Supply Management through → Imports.
• Incomes Policy →Freezing Wages.

National Economy and Individual Income

A national economy refers to the economy of an entire country, The national economy includes
financial resources and management, it encompasses the value of all goods and services
manufactured within a nation.
An Individual income means “adjusted gross income” as reported for federal income tax purposes,
less any income attributable to a spouse or to property owned by a spouse.
Inflation – ESI Notes Free Regulatory Bodies Exams Notes e-book

Measures of Economic Performance

• Balance of payment
• Unemployment
• Economic Growth (GDP)
• Exchange Rates
• Inflation

Important Terminologies Related to Measuring of Economy and Individual

Income

GDP Gross domestic product (GDP) is the total monetary or market value of all
(Gross Domestic the finished goods and services produced within a country’s borders in a
Product) specific time period.

GNP Gross national product (GNP) is an estimate of the total value of all the final
(Gross National products and services turned out in a given period by the means of
Product) production owned by a country's residents

NNP Net national product (NNP) is the monetary value of finished goods and
(Net National services produced by a country's citizens, overseas and domestically, in a
Product) given period.

NDP Net domestic product (NDP) is an annual measure of the economic output of
(Net Domestic a nation that is calculated by subtracting depreciation from the gross
Product) domestic product (GDP).

GNI GNI is the total amount of money earned by a nation's people and businesses.
(Gross National It is used to measure and track a nation's wealth from year to year.
Income)

HDI Human Development Index (HDI) is a statistic developed and compiled by

(Human the United Nations to measure and various countries' levels of social and
Development economic development
Index)

Join us On:
Sources:
Telegram Channel
• Investopedia Youtube Channel
• Mrunal Economy Book Whatsapp Channel
• Ramesh Singh Indian Economy Book
• Budget and Economic Survey
Inflation – ESI Notes Free Regulatory Bodies Exams Notes e-book

J
 Free Ebooks Current Affairs
Download Now Explore Now

FREE MOCK TESTS + TOPIC TESTS + SECTIONAL TESTS

For RBI Gr. B, NABARD Gr. A, SEBI Gr. A,
IFSCA Gr. A & SIDBI Gr. A Exams
Web App

BLOG FORUM

Your one-stop destination for Interact with peers & experts,

all examrelated information & exchange scores & improve
preparation resources your preparation

Explore Now Explore Now

www.oliveboard.in