Inflation and Unemployment in India

INFLATION
Inflation is nothing more than a sharp upward rise in price level. Too much money chasing, too few goods. Inflation is a state in which the value of money is falling i.e. price are rising.
As the cost of goods and services increase, the value of a currency is going to go down because you won't be able to purchase as much with that currency as you could have last month or last year.
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CAUSES OF INFLATION
Demand pull inflation

Cost push inflation

Demand-Pull Inflation

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 favorable market conditions will stimulate investment and expansion.

Cost-Push Inflation

Cost-Push Inflation
Cost-push inflation basically means that prices have

been pushed up by increases in costs of any of the four factors of production (labor, capital, land or entrepreneurship) when companies are already running at full production capacity. With higher production costs and productivity maximized, companies cannot maintain profit margins by producing the same amounts of goods and services. As a result, the increased costs are passed on to consumers, causing a rise in the general price level (inflation).

HOW TO CONTROL INFLATION

Monetary Measures Fiscal Measures Other Measures

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

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OTHER MEASURES
To Increase Production Rational Wage Policy
Price Control

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How is it Measured?
Consumer Price Index

Wholesale Price Index

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Consumer Price Index

CPI is a measure estimating the average price of consumer goods and services purchased by households. CPI measures a price change for a constant market basket of goods and services from one period to the next within the same area (city, region, or nation). It is a price index determined by measuring the price of a standard group of goods meant to represent the typical market basket of a typical urban consumer. The percent change in the CPI is a measure estimating inflation.
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Wholesale Price Index

WPI was published in 1902,and was one of the economic indicators available to policy makers until it was replaced by most developed countries by the CPI market. index in the 1970. WPI is the index that is used to measure the change in the average price level of goods traded in wholesale market. Some countries (like India and The Philippines) use WPI changes as a central measure of inflation. However, India and the United States now report a producer price index instead.
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Inflation rate
PI for a certain year - PI for a comparative year PI for a comparative year X 100

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Inflation Rate in India

The inflation rate in India was last reported to be 9.22 percent in July of 2011 Since the year of 1969 till the year of 2010, the average inflation rate in India was 7.99 percent. The inflation rate of the country reached an historical high of 34.68 percent during the month of September in the year of 1974. The lowest was recorded in the month of May in the year of 1976. It was reported to be as low as -11.31
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Chart on Inflation rate

Year

Jan

Feb

Mar

Apr

May

June

July

Aug

Sept

Oct

Nov

Dec

2011

9.35

9.54

9.68

9.7

9.56

9.44

9.22

2010

16.2

14.9

14.9

13.3

13.9

13.7

11.3

9.88

9.82

9.7

8.33

9.47

2009

10.5

9.63

8.03

8.7

8.63

9.29

11.9

11.7

11.6

11.5

13.5

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2008

5.51

5.47

7.87

7.81

7.75

7.69

8.33

9.02

9.77

10.5

10.5

9.7

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EFFECTS OF INFLATION
They add inefficiencies in the market, and make it difficult for companies to budget or plan long-term. Uncertainty about the future purchasing power of money discourages investment and saving.

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EFFECTS OF INFLATION
There can also be negative impacts to trade from an increased instability in currency exchange prices caused by unpredictable inflation. Higher income tax rates. Inflation rate in the economy is higher than rates in other countries; this will increase imports and reduce exports, leading to a deficit in the balance of trade.
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EXAMPLE of inflation
Increase in the price of wheat Increase in the price of world oil Increase in the price of rice Increase in the price of CNG (Compressed Natural Gas)

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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.

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Unemployment
Unemployment is a situation that exists when people who are willing and able to work cannot get a job Full unemployment exists when the number of jobs available in a economy is equal to or greater than the number of people actively seeking work. Under employment exists when workers are carrying out jobs for which they are over- qualified, that is they are not using their full skills and abilities or when workers are employed part-time, even though they are available for full-time employment or when workers in a planned economy are undertaking jobs that would not exists in a free market

Sources of Unemployment

Frictional Seasonal Structural Cyclical

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Unemployment
Structural Unemployment is unemployment that exists when in the long term the pattern of demand and productions methods change and there is a permanent fall in the demand for a particular type of labor. There is a mismatch between skills and the jobs available

Unemployment
Frictional (Search) Unemployment is the unemployment that exists when people have left a job and are in process of searching for another job Seasonal Unemployment is unemployment that exists when people are out of work because their usual job is out of season Cyclical Unemployment is unemployment that exists when there is insufficient aggregate demand in the economy and real wages do not fall to compensate for this

Unemployment
Real Wage Unemployment is unemployment that exists when real wages (wages adjusted for inflation) in the economy get pushed up above their equilibrium, either by the government or by trade unions

40 Million Unemployed with an Unemployment Rate of 9.4%

The survey was conducted in 28 States It estimates that the population of the country is 1182 million with 63.5% in the working age of 15 59 years, however, not everyone who is in the working age is interested in joining the work force, so the worker population ratio is much lower.

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 The overall unemployment rate is 9.4% It is split out as 10.1% in rural areas, and 7.3% in urban areas. 359 persons per 1,000 are either working or interested to work out of an estimated population of 1,182 million 424 million persons are either employed or are interested in working.
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Contd...
Females, the unemployment rate is 8%, whereas for females the unemployment rate is 14.6%. The rural unemployment rate is 10.1% and the urban unemployment rate stands at 7.3%

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Cont...
The unemployment rate of 9.4% means that out of those 359 persons per thousand, or 424 million people there are 9.4% or about 40 million who were unemployed. Here are the numbers in millions.
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Unemployment chart

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