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Inflation

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4 views1 page

Inflation

Uploaded by

mrqader16181
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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INFLATION

Types of Inflation

Demand-Pull Inflation Cost-Push Inflation Built-in Inflation

This type of inflation is caused due to an increase in This type of inflation is caused due to various reasons This type of inflation involves a high demand for
aggregate demand in the economy. such as: wages by the workers which the firms address
● Increase in price of inputs by increasing the cost of goods and services for the
Causes of Demand-Pull Inflation ● Hoarding and Speculation of commodities. customers.
● Defective Supply chain
● A growing economy or increase in the supply of ● Increase in indirect taxes
money - When consumers feel confident, they spend ● Depreciation of Currency
more and take on more debt. This leads to a steady ● Crude oil price fluctuation
increase in demand, which means higher prices. ● Defective food supply chain
● Government spending or Deficit financing by the
● Low growth of Agricultural sector
government - When the government
● Food Inflation
spends more freely, prices go up.
● Interest rates increased by RBI
● Due to fiscal stimulus.
● Increased borrowing.
● Depreciation of rupee.
● Low unemployment rate.

Effects of Demand-Pull Inflation

● Shortage in supply
● Increase in the prices of the goods (inflation).
● The overall increase in the cost of living.

Measurement of Inflation Important Terms

Terms Inflation

1. Wholesale Price Index (WPI) - It is estimated by the 1. Disinflation: Reduction in the rate of inflation
Ministry of Commerce & Industry
and measured on a monthly basis. 2. Deflation: Persistent decrease in the price level
(negative inflation)
2. Consumer Price Index (CPI) - It is calculated by
taking price changes for each item in the 3. Reflation: Price level increases when the economy
predetermined lot of goods and averaging them. recovers from recession based on
value of inflation
3. Producer Price Index - It is a measure of the
average change in the selling prices over 4. Creeping inflation –
time received by domestic producers for their output. If the rate of inflation is low ( upto 3% )

4. Commodity Price Indices - It is a fixed-weight index 5. Walking inflation –


or (weighted) average of selected Rate of inflation is moderate ( 3-7% )
commodity prices, which may be based on spot or
futures price 6. Running inflation –
Rate of inflation is high (>10%)

7. Runaway/Hyper Inflation –
Rate of inflation is extreme (+ 100%)

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