2. INFLATION
• Inflation is an economic condition in which the
aggregate prices are always increasing in a
country
• The value of money is falling
• Inflation is nothing but too much money
chasing too few goods
3. DEFLATION
• Deflation is the opposite of inflation
• A decline in general price levels, often cased
by a reduction in the supply of money or
credit
• Deflation can also be brought about by direct
contractions in spending, either in the form of
a reduction in government spending, personal
spending or investment spending
4. TYPES OF INFLATION ON THE BASIS OF
SPEED
• Creeping inflation
The inflationary rate is less than 2%. That means prices
are increasing gradually
• Walking inflation
The inflationary rate is around 5% i.e. a little more than
creeping inflation
• Running inflation
The inflation is growing at the rate of 10%
• Galloping inflation
Inflation is higher than the earlier stages. Inflation is
growing at around 25%
5. TYPES OF INFLATION ON THE BASIS OF
INDUCEMENT
• Deficit induced
Reasons for inflation: Deficit in the balance of payment. Fiscal
deficit
• Wage induced
Due to higher wages and salaries, the money supply increases
leading to inflation
• Profit induced
When an organization earns higher profit, the same is shared with
the stakeholders which induces the money supply and reduces the
value of money
• Scarcity induced
Scarcity of raw materials and other input factors may induce price
Example: Petrol
6. TYPES OF INFLATION ON THE BASIS OF
INDUCEMENT Contd…
• Currency induced
Value of currency fluctuates due to various internal and external forces
• Sectoral inflation
A particular sector of a country may be the reason for economic growth or
money growth. Example: IT
• Foreign trade
If there is unfavorable balance of payments position, the country needs
more of foreign currency to make payments leading to higher demand for
other currencies
• War time, Post war, Peace time
During war time, the government expenditure on various amenities will
induce the inflation
After war or natural calamities, to stabilize the economy, the government
may spend more
7. EFFECTS OF INFLATION
• On producers: Producers will earn more profit due to higher prices
• On debtors and credits: Creditors will be happy to receive more
returns on their lending
• On wage and salary earners: Increase in income will not keep pace
with increase in prices and so affected
• On fixed income group: Income is fixed but the value of the
currency is falling and prices are increasing and hence they are
affected
• On investors: Investors will receive more returns on their
investments
• On farmers: Farmers will suffer
• On social, moral and political effects: Social and moral values
decline with political disturbances
8. • DEMAND PULL INFLATION
Aggregate demand is greater than aggregate
supply which leads to price hike and inflation
• COST PUSH INFLATION
An increase in wage rates and an increase in
the prices of raw materials leads to increase in
cost of goods resulting in inflation called cost
push inflation
9. METHODS OF CONTROLLING
INFLATION
MONETRY MEASURES
• Bank rate
• Open market operations
• Higher reserve ratio
• Consumer credit control
• Higher margin requirements
10. METHODS OF CONTROLLING
INFLATION Contd…
FISCAL MEASURE
• Regulating government expenditure
• Taxation
• Public borrowing
• Debt management
• Over valuation of home currency
11. METHODS OF CONTROLLING
INFLATION Contd…
OTHERS
• Wage policy
• Price control measures and rationing the
essential supplies
• Moral suasion
