INFLATION

By Group-9

By Group-9

CONCEPTS
INFLATION

DEFINATION
GENERAL PRICE LEVELS INCREASES VALUE OF MONEY (PURCHASING POWER OF MONEY ) FALLS MONEY CIRCULATION > PRODUCTION

PROBLEMS
PRICE RISE IS FASTER THAN INCOME STANDARD OF LIVING DECLINES MAJOR SOCIAL TENSIONS

Term Related to Inflation

Inflationary Spikes Hyper inflation Stagflation Disinflation Deflation

Reflation

Inflation data of past 5 year

FIVE YEAR INFLATION TREND

Data source: www.rbi.gov.in

METHODS
WPI

OF

CALCULATION
CPI Measures the average price of consumer goods and services purchased by households.

Measure the temporal price change of wholesale transactions of all commodities in the country.

The weights of items have been assigned in proportion to their share in the total value of transaction (output) in the economy

Weights are assigned in proportion to their share in the consumption expenditure of the family of industrial workers in the selected centers

Measures inflation at each stage of production

Measures inflation only at final stage of production.

India, is amongst few countries of the world, which selected WPI as its official scale to measure the inflation in the economy.

Most of the major economies like US, UK, Japan, France, Singapore and even our arch rival China have selected CPI as its official barometer to weigh its inflation

CAUSE OF INFLATION IN INDIA

Demand-pull inflation refers to the idea that the
economy actual demands more goods and services than available. This shortage of supply enables sellers to raise prices until an equilibrium is put in place between supply and demand.

The cost-push theory , also known as "supply shock

inflation", suggests that shortages or shocks to the available supply of a certain good or product will cause a ripple effect through the economy by raising prices through the supply chain from the producer to the consumer. You can readily see this in oil markets. When OPEC reduces oil supply, prices are artificially driven up and result in higher prices at the pump.

Contd..
Money supply plays a large role in inflationary
pressure as well. Low interest rates correspond with a high levels of money supply and allow for more investment in big business and new ideas which eventually leads to unsustainable levels of inflation as cheap money is available.

EFFECTS OF INFLATION
Income Distribution

# wages earner # producers #fixed income class #borrowers and lenders Employment

CRUDE OIL PRICES AND INFLATION

Crude oil
245 240 235 230 225 220 215

inflation

Series2

210
205 Jan Feb Mar Apr May Jun Jul Aug

REMEDIES
Cash Reserve Ratio increased. Control over Price of Petrol and Diesel. Decreased import tariff. Tax increase Cement price control. Import duty on non-agricultural products was brought down to 10% from 12.5% 7. Allowed appreciating the Rupee.
1. 2. 3. 4. 5. 6.

CURRENT SCENARIO
. The inflation rate in India was recorded at 7.25 percent in June of 2012

Indias retail inflation, measured by the

Consumer Price Index, dropped marginally to 10.02% in June compared to 10.36% in the previous month of May

Thank you