Inflation

For 8th Std Students

Milk Prices

1980- Rs 4 per lt.

2014 –Rs 38 per lt.

Potato Prices

1980- Rs 4 per lt.

2014 –Rs 22 per lt.

Petrol Prices

1980- Rs 5 per lt. (approx)

2014 –Rs 70 per lt.

Have you ever wondered why prices are rising ?

We need some many items for every day living

If any one of these items becomes scarce, it affects every other item

If Land become scarce

• Rent Increases or House prices increase

• Workers working in Milk Diary demand more Salary

• Milk Diary increases the prices of Milk

• Every other workers ask for increase because now Milk and Rent have become more expensive

• Finally every thing becomes higher

If petrol becomes scarce

• Bus Transport company increases Ticket prices

• Workers traveling by Bus to Milk Diary ask for Salary increase

• Milk Prices are increased

• Now every one buying Milk in the city ask for Salary increase

• Every other goods prices increase because now every company has to give salary increase

Inflation Spiral

It is not necessary that all prices will increase

1999 2014

Rs 16 per min cost of out going call

Rs 0.5 per minute cost of out going call

Rs 6000 – One way Bangalore -Mumbai

Rs 2500 – One way Bangalore Mumbai

Rs 40000 – cost of basic model computer

Rs 20000 cost of basic model computer

Even if prices of some goods/services are falling, increase in price of 1 or 2 items can push the over all cost of our living expenses

How is inflation measured?

• Increase in Inflation can measured by the number Cost Inflation Index (CII)

• Every year around June Income Tax Department Publishes the figure ‘Cost Inflation Index” for the particular year which can be used for measuring inflation

How much is the increase in prices due to Inflation?

Year CII Year CII Year CII

1981-82 100 1997-98 331 2013-14 939

1982-83 109 1998-99 351 2014-15 1024

1983-84 116 1999-00 389

1984-85 125 2000-01 406

1985-86 133 2001-02 426

1986-87 140 2002-03 447

1987-88 150 2003-04 463

1988-89 161 2004-05 480

1989-90 172 2005-06 497

1990-91 182 2006-07 519

1991-92 199 2007-08 551

1992-93 223 2008-09 582

1993-94 244 2009-10 632

1994-95 259 2010-11 711

1995-96 281 2011-12 785

1996-97 305 2012-13 852

If a family were able to manage their expenseswith Rs 100 in 1981-82they will need Rs 1024In 2014-15

Sample Problems

1981-82 2005-6 2014-15

Cost Inflation Index 100 497 1024

Cost of 1 Lt of Milk Rs 4 Rs 18 Rs 38

Cost of 1 Lt of Petrol

Rs 5 Rs 40 Rs 70

School Fees per year

Rs 1000 Rs 15000 Rs 60000

Q1. If milk prices were to increase exactly in line with inflation what should be the cost of milk in 2014 compared to 1981-82?

Q2. Which of the above goods services (Milk, Petrol, School Fees sawSteepest increased more than inflation between 1981-82 and 2005-06?

Sample Problems

1981-82 2005-6 2014-15

Cost Inflation Index 100 497 1024

Cost of 1 Lt of Milk Rs 4 Rs 18 Rs 38

Cost of 1 Lt of Petrol

Rs 5 Rs 40 Rs 70

School Fees per year

Rs 1000 Rs 15000 Rs 60000

Q1. If milk prices were to increase exactly in line with inflation what should be the cost of milk in 2014 compared to 1981-82? Ans: (1024/100)*4 = Rs 40.96

Q2. Which of the above goods services (Milk, Petrol, School Fees sawSteepest increased more than inflation between 1981-82 and 2005-06?Actual Price of Milk inline with inflation should be : (497/100)*4 = Rs 19.88Actual Price of Petrol inline with inflation should be : Rs 24.85Actual Price of School Fees in line with inflation should be : Rs 4970Hence School Fees and Petrol increased more than inflation

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