InflationIntroduction: By Saiprasad

It is persistent rising in the general price level.-Edward Shapiro

• Sometimes due to bottlenecks in the economy, an increase in money supply may cause costs and prices to rise more than the rise in output and employment. This is called Semi-inflation.

• Once full employment level is reached, the entire increase in money supply is reflected by rising prices-a case of True inflation.

Inflation

Disinflation

Deflation

Reflation

XA

B

C

D

E

FNI,P,O,E

No. of Years

XA—Depression(Deep Deflation), AB—Recovery (Reflation )BC—Expansion(Inflation), CD—Slowdown(Disinflation),DE—Recession(Deflation), EF—Recovery (Reflation)

Full Employment Output

Types of InflationBy Bhagyshree & Sarika

Types of Inflation

Open Inflation

The rate where Costs rise due to Economic trends of Spending Products and Services.

Suppressed Inflation

Existing inflation disguised by government Price controls or other interferences in the economy such as subsidies. Such suppression, nevertheless, can only be temporary because no governmental measure can completely contain accelerating inflation in the long run. It is Also Called Repressed Inflation.

Galloping Inflation

• In economics, occurs when the rate of inflation in a country accelerates very quickly, and is perceived to be unstoppable.

• Galloping inflations are often associated with war and various types of socio political upheaval.

• Very Rapid Inflation which is almost impossible to reduce.

Creeping Inflation

• Circumstance where the inflation of a nation increases gradually, but continually, over time.

• This tends to be a typically pattern for many nations.

• Although the increase is relatively small in the short-term, as it continues over time the effect will become greater and greater.

• Creeping or mild inflation is when prices rise 3% a year or less.

Hyper Inflation

• Hyperinflation is an extremely rapid period of inflation, usually caused by a rapid increase in the money supply.

• Usually due to unrestrained printing of currency.

• Classic examples are the Hyperinflation of Weimar Germany and the more recent Zimbabwean Hyperinflation which reached 2.2 Million Percent.

How do we measure it?-By Vinita

•  Inflation Rate in India is reported by the Ministry of Commerce and Industry, India

• The Wholesale Price Index (WPI) is the price of a representative basket of wholesale goods

• The WPI focuses on the price of goods traded between corporations, rather than goods bought by consumers, which is measured by the Consumer Price Index (CPI)

• Purpose of WPI- monitor price movements that reflect supply and demand in industry, manufacturing and construction

• The Indian WPI figure was released weekly on every Thursday but since 2009 it has been made monthly

• The WPI is calculated on the base year 2004-05= 100

• The WPI is divided into three groups:

Primary Articles (20.12 percent of total weight)

Fuel and Power (14.91 percent)

Manufactured Products (64.97percent)

• The CPI is measured by Central Statistics Office (CSO), Ministry of Statistics and Programme Implementation

• Calculated on the base year 2010 = 100 for all-India and States/UTs separately for rural, urban and combined every month w. e. f January, 2011

• WPI : 4.68 % in Feb. 2014

• CPI: 8.10 % in Feb. 2014

• Inflation rates in Feb. 2014• for Rural 8.51%

• for Urban 7.55%

Current Status

Causes of InflationBy Alakhananda

Keynesian View

Demand-Pull Inflation

•Caused by increases in aggregate demand due to increased private and government spending.

•Encourages economic growth since the excess demand and favourable market conditions will stimulate investment and expansion.

Cost-

push Inflation

•Caused by a drop in aggregate supply (potential output).

•Also called "supply shock inflation"

Built-in

Inflation

•It involves workers trying to keep their wages up with prices and firms passing these higher labour costs on to their customers as higher prices

Monetarist View

1.

Most significant factor influencing inflation or deflation is how fast the money supply grows or shrinks

2.

Fiscal policy, or government spending and taxation, is ineffective in controlling inflation

3.

"Inflation is always and everywhere a monetary phenomenon."[

Effects of Inflation- By Delson

• Hardships for poor people and fixed income salaried households

• Business Profits tend to go up in times of inflation

• Demand for pay hikes and wage increases

• Social tensions

• Higher Income tax rates

• Value on money lent out falls in purchasing power - value of money to be repaid falls in terms of purchasing power falls

• Interest rates might rise

• Instability in exchange rates

• Uncertainty about the future purchasing power of money discourages investment and saving

• Deficit in the balance of trade

• They add inefficiencies in the market, and make it difficult for companies to budget or plan long-term

• Central Bank may try to control money supply growth through hike in cash reservation, raising discount rates and conduct open market sale of securities

How to control it?By Varun

Classical economists are of the view that inflation can be checked by controlling the supply of money. Some of the important monetary measures to check the inflation are as under:

•   Control over money• Credit control

Monetary Measures

Fiscal Measures

Measures taken by the government to control inflation.

• Decrease in public expenditure

• Delay in payment of old debts

• Increase in taxes

• Over valuation of money                 

Other Measures

• Increase in the production

• Proper commercial policy

• Encouragement to savings

• Proper investment policy

Thank You!!!

MMS 2013-15SIES College of Management