Whats Inflation ?

Inflation means a persistent rise in the price levels of commodities and services, leading to a fall in the currencys purchasing power.

Definitions:
According to crowthers inflAtion means a state in which the value of money is fAlling i.e. prices Are rising. According to pigou inflAtion arises when money income is expanding more than proportionate to income earning Activity. According to prof. sAmuelson Inflation occurs when general level of prices & cost Are rising.

Causes Of Inflation

1. 2. 3. 4. 5.

EXTREME IMBALANCE OF GLOBAL ECONOMY FUEL PRICE HIKE HIGHER INTERNATIONAL FARM PRICES FOOD PRICE HIKE Tax rise

Measures of Inflation
Inflation is measured by calculating the percentage rate of change of a price index, which is called the inflation rate. This rate is calculated by mainly two different price indices: 1. Wholesale price index 2. Consumer price index

Wholesale price index

WPI is the index that is used to measure the change in the average price level of goods traded in wholesale market. India uses the WPI to calculate and then decide the inflation rate in the economy. WPI does not properly measure the exact price rise an end-consumer will experience because, as the name suggests, it is at the wholesale level.

Consumer price index

CPI is a measure of a weighted average of prices of a specified set of goods and services purchased by consumers. It is a price index that tracks the prices of a specified basket of consumer goods and services, providing a measure of inflation. Most developed countries uses this index.

Between 1950-1960
Between 1960-1970

The inflation on an average was at 2.00% The inflation on an average was at 7.2%
Between 1970-1980

The inflation on an average was at 8.5%.

Factors affecting inflation

Increase in the money supply. Decrease in the demand for money. Decrease in the aggregate supply of goods and services. Increase in the aggregate demand for goods and services.

Types
There are three major types of inflation categorized by the causes: 1. Demand-pull inflation 2. Cost-push inflation 3. Built-in inflation

Two Major Types Of Inflations

Demand-pull inflation
inflation caused by increases in aggregate demand due to increased private and government spending, etc. Demand inflation is constructive to a faster rate of economic growth since the excess demand and favourable market conditions will stimulate investment and expansion.

Supply shock inflation

caused by drops in aggregate supply due to increased prices of inputs E.g.: Take for instance a sudden decrease in the supply of oil, which would increase oil prices. Producers for whom oil is a part of their costs could then pass this on to consumers in the form of increased prices. supply-shock inflation involves a trickle down effect that will cause changes in many sectors of the marketplace

Built-in inflation
induced by adaptive expectations, often linked to the "price/wage spiral" because it involves workers trying to keep their wages up (gross wages have to increase above the CPI rate to net to CPI after-tax) with prices and then employers passing higher costs on to consumers as higher prices as part of a "vicious circle."

CONSEQUENCES OF INFLATION
Adverse effect on production Adverse effect on distribution of income Obstacle to development

Changes in relative prices

Adverse effect on the B.O.P

Measures taken to control inflation

Monetary measures Credit control Demonetization of currency Issue of new currency

Fiscal measures

Reduction in unnecessary expenditure Increase in taxes Increase in savings Surplus budgets Public debt

Fiscal measures

To increase production Rational wage policy Price control Rationing

REMEDIES
1. 2. 3. 4. 5. 6. 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.

SHARE MARKET

The market in which shares are issued and traded either through exchanges or over-thecounter markets. Also known as the equity market, it is one of the most vital areas of a market economy as it provides companies with access to capital and investors with a slice of ownership in the company

 Stock parameter is the factors that eventually control the stock price at the stock exchange. A better understanding of these parameters will help you to trade in stocks. Here we are presenting definitions of some of the most important parameters. Face Value Face value of a stock represents the nominal value that the issuer of the stock decided for that stock. Book Value - Book Value of stock is determined by dividing the net worth of the company divided by the number of shares outstanding. The net worth of the company is total asset of the company minus the liabilities.

 Market Price Market price indicates the last traded price at a particular stock exchange where the stock is listed at a given day. Market Capitalization market capitalization of company is determined by multiplying the market price of the stock with the total number of issued and outstanding stock in the market. Volume Volume of stock is average of total traded stocks at the exchange over a period of time. 52 weeks High/Lows The highest and lowest point of the price of a stock at the exchange in the immediately preceding 52 weeks.

 Price to 52 Week High/Lows - It is determined by dividing the current market price of the stock by 52 Week High/Low. This value is the indicator of the fact how the stock has performed in the period of 52 weeks. Earning per share - EPS is determined by dividing the net profit of the company, the aggregate net profit of the last four quarters, by fully diluted equity capital. Price to Earning Ratio (P/E) P/E ratio is determined by dividing the closing price of a stock with the Earning per Share or EPS of the stock. Dividend Dividend is defined as the distribution of a portion of a company's earnings, decided by the board of directors, to its shareholders

Impact of Inflation on Share Prices

Since 1950 the level of inflation is negatively correlated with stock market returns. This is understandable as high levels of inflation eventually hurt stock values as well.
Equity = Assets Liabilities. Inflation increases the prices of real assets but does not increase liabilities. Thus inflation should increase the nominal value of equity. Inflation increases earning volatility and hence should reduce value. Firms value will suffer because of higher discount rate during inflation even though the prices of its real assets go up in response to the rising prices.

Because of high inflation, RBI increases the interest rates. Lower demand for goods & service in market slow economic growth of country & decrease in net sale of companies. results in loss for companies reduces there firm value & reputation in market decrease in share price

Big Fall Buying opportunities

Attractive valuations. Purchase large capital companys shares. Give time-Stay invested-you will not get regretted. Focus on long term gains. Market volatility opportunities for long term investors. Expects Indian economy to grow. Merger & Acquisitions.