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    Inflation

    Uploaded by

    Gunjan Chaudhari

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    © All Rights Reserved
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    Inflation

    Uploaded by

    Gunjan Chaudhari
    2 views12 pages

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    © © All Rights Reserved

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    Copyright:

    © All Rights Reserved
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    Download as pptx, pdf, or txt
    2 views12 pages

    Inflation

    Uploaded by

    Gunjan Chaudhari

    Copyright:

    © All Rights Reserved
    Download as PPTX, PDF, TXT or read online from Scribd
    Download as pptx, pdf, or txt
    of 12

    INFLATION

    PREPARED BY
    MR. GUNJAN MILIND CHAUDHARI
    ASSISTANT PROFESSOR
    INFLATION

     In economics, inflation is defined a sustained increase in the general price level of


    goods and services in an economy over a period of time.

     It is measured as an annual percentage increase.

     When the general price level rises, each unit of currency buys fewer goods and
    services.

     This implies that inflation reflects a reduction in the purchasing power per unit of
    money. In other words, inflation indicates a loss of real value in the medium of
    exchange and unit of account in the economy.
    Types of Inflation
     Creeping Inflation:

    Creeping Inflation also known as a Mild Inflation or Low Inflation refers to that type
    of inflation when the rise in prices is very slow like that of snail or creeper. It is the
    mildest form of inflation with less than 3% per annum.

     Chronic Inflation:

    If creeping inflation persist for a longer period of time then it is often called as
    Chronic or Secular Inflation. It is called chronic because if an inflation rate continues
    to grow for a longer period without any downturn which may possibly lead to
    Hyperinflation.
     Running Inflation:

    A rapid acceleration in the rate of rising prices is referred as Running Inflation. This type of inflation
    occurs when prices rise by more than 10% per annum.

     Walking or Trotting Inflation:

    When prices rise moderately with a single digit of less more than 3% but less than 10% per annum it is
    called as Walking Inflation.

     Galloping Inflation:

    Galloping inflation also known as Jumping inflation occurs when prices rise by double or triple digit
    inflation rates of more than 20% but less than 1000% per annum. Some Latin American countries like
    Brazil and Argentina had experienced inflation rates of over 100 per cent in the 1970s.

    .
     Stagflation

    The term stagflation (stagnation plus inflation) refers to the situation where an economy grows very slowly or at
    zero rate (stagnant) and prices keep rising. The side effects of stagflation are increase in unemployment-
    accompanied by a rise in prices, or inflation. It raises economic dilemma as the actions designed to lower inflation
    may worsen unemployment and vice versa. This happened during the 1970s, when crude oil prices rose
    dramatically, fueling sharp inflation in developed economies.
     Hyperinflation:

    When prices rise at an alarming high rate with quadruple or four digit inflation rate of above 1000% per annum then
    is termed as Hyperinflation. It is a situation where the prices rise so fast that it becomes very difficult to measure its
    magnitude. During a worst case scenario of hyperinflation, value of national currency of an affected country reduces
    almost to zero. Paper money becomes worthless and people start trading either in gold and silver or sometimes even
    use the old barter system of commerce. Two worst examples of hyperinflation recorded in world history are of those
    experienced by Hungary in year 1946 and Zimbabwe during 2004-2009 under Robert Mugabe's regime
     Deflation
    Deflation is a situation where there is a consistent decline in price level. Here again you have to
    notice the words ‘consistent’ and ‘price level’. Thus decline in price of a single commodity cannot be
    terms as deflation. A situation of deflation arises when aggregate demand is lower than aggregate
    supply. Thus, deflation is characterized by a decrease in output, increase in unemployment, and
    general slowing down of the economic activities. The Great Depression of 1930s is an example of an
    acute deflation when prices crashed, unemployment increased to a very high level, and GDP of the
    developed countries fell sharply. There are many adverse effects of deflation. Deflation in a modern
    economy is bad because it increases the real value of debt, and discourages production in the
    economy as prices keep falling.
    Causes of Inflation

     Demand-Pull Inflation:
    Demand-Pull Inflation also known as Excess Demand Inflation takes place when aggregate demand
    for a good or service outstrips aggregate supply. In other words, when aggregate demand for all
    purposes- consumption, investment and government expenditure-exceeds the supply of goods at
    current prices then it is called Demand-Pull Inflation. Demand-Pull inflation gives rise to a situation
    often economists describe as “Too much money chasing too few goods”

     Cost-Push Inflation:

    When prices rise due to growing cost of production of goods and services then it is known as Cost-
    Push Inflation. Cost-push inflation also came to known as “New Inflation” is determined by supply-
    side factors mainly caused by higher wage-push, Profit-Push and higher costs of raw materials.
     Scarcity Inflation:
    Scarcity inflation occurs due to hoarding by unscrupulous traders and black marketers so as to
    create an artificial shortage of essential goods like food grains, kerosene,etc. with an intension to sell
    them only at higher prices to make huge profits.

     Structural Inflation:
    Structural inflation is that type of inflation often experienced in developing countries which is
    caused by structural rigidities such as agricultural bottlenecks, resource constraints bottlenecks,
    foreign exchange bottlenecks, physical infrastructural bottlenecks etc.
    Effects of Inflation

     Debtors and Creditors

     Fixed Income Groups

     Traders and Investors

     Agriculturalists

     Government
    Indices in Inflation

    Wholesale Price Index

     The Wholesale Price Index represents the price of a basket of wholesale


    goods. WPI focuses on the price of goods that are traded between corporations. It
    does not concentrate on goods purchased by the consumers.

     The main objective of WPI is monitoring price drifts that reflect demand and
    supply in manufacturing, construction and industry.

     WPI helps in assessing the macroeconomic as well as microeconomic conditions


    of an economy.
    Consumer Price Index

     Consumer Price Index or CPI is the measure of changes in the price level of a basket of consumer
    goods and services bought by households. CPI is a numerical estimation calculated using the
    rates of a sample of representative objects the prices of which are gathered periodically.

     The CPI captures changes in price level at the consumer level.

     Changes in prices at the producer level are tracked by the Wholesale Price Index (WPI).

     CPI can capture the change in the prices of services which the WPI cannot.
    Thank You

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