INFLATION:
· Inflation refers to the rise in the prices of
most goods and services of daily or common use, such as food, clothing,
housing, recreation, transport, consumer staples, etc. Inflation measures the
average price change in a basket of commodities and services over time.
· Rise in general level of prices of goods and
services in an economy over a period of time.
· Money loses its value or purchasing power of
currency is falling.
· Too much money chasing too less goods.
TYPES OF INFLATION:
1. CREEPING INFLATION:
· Less than 3%
· Very mild & slow moving
· Safe and essential for economic growth
2. WALKING OR TROTTING INFLATION:
· 3% to 10%
· Warning signal to government
3. RUNNING INFLATION:
· 10-20%
4. JUMPING OR GALLOPING:
· 20-999%
· Double- or triple-digit inflation
5. HYPER INFLATION:
· More than 999%
· Germany in 1920s, Zimbabwe in 2007, Venezuela in 2016.
CAUSES OF INFLATION:
DEMAND PULL INFLATION:
· Demand-pull inflation is asserted to arise when aggregate demand in an economy outpaces aggregate supply.
· Demand is higher than supply.
· CAUSES:
·
Rapid population growth
·
Increased confidence
·
Money supply increases
·
Rising wages
·
Interest rate cut
COST PUSH INFLATION:
· Price rise due to
increased input cost.
· CAUSES:
·
Increase in wages
·
Increase in import prices
·
Rising oil prices
·
Higher taxes
STRUCTURAL INFLATION:
·
Failing to procure adequate food grains for PDS
·
Scope for black marketing
·
Price for essential goods
·
Procurement prices
EFFECTS OF INFLATION:
·
Aggregate demand increases
·
Reduces purchasing power
·
Reduces savings
· Cost of borrowing increases
Credits:Leo Hemananthini
