INFLATION

GROUP MEMBERS

• Roshan Vaidya 56

• Pranali Vedak 57• Aditi Verma 58• Neha Vora 59• Siddhesh Waghela 60• Rakesh Ware 61

SYNOPSISIntroductionDefinitionRate of inflationTypes of inflationForms of inflationCauses of inflationMeasures of inflationConsequences of inflationConsumer price indexWholesale price index

INTRODUCTION

Inflation is defined as a sustained increase in the price level or a fall in the value of money.

It is measured as a rate percentage per unit time, say a year or month.

When the level of currency of a country exceeds the level of production, inflation occurs.

Value of money depreciates with the occurrence of inflation.

DEFINITION

According to C.CROWTHER, “Inflation is state in which the value of money is falling and the prices are rising.”

In economics,the word inflation refers to

general rise in prices measured against a standard level of purchasing power.

RATE OF INFLATION

• Rate of inflation is the rate of change of the general price level. It is measured by simple formula:-

• Rate of inflation t=Pt-Pt-1 Pt-1

Where, Pt=price level in the year t

Pt-1=price level in the year t-1,the base year

• If there is a decline in the rate of inflation such a situation is called DISINFLATION.

INDIA INFLATION RATE•  India inflation rate stands at 11.49 percent year-over-year.

Inflation rate refers to a general rise in prices measured against a standard level of purchasing power.

• The most well known measures of Inflation are the CPI which measures consumer prices, and the GDP deflator, which measures inflation in the whole of the domestic economy.

• . The economy has posted an average growth rate of more than 7% in the decade since 1997, reducing poverty by about 10 percentage points.

CHART OF INFLATION RATE

YEA JAN FEB MAR APR MAY JUN JUL AUG SEP OCT NOV DEC

2009 1.45 9.63 8.03 8.70 8.63 9.29 11.89

11.72

11.64

11.49

2008 5.1 5.47 7.87 7.81 7.75 7.69 8.33 9.02 9.77 10.45

10.45

9.70

2007 6.72 7.56 6.72 6.67 6.61 5.6 9 6.45 7.26 6.40 5.51 5.51 5.51

2006 4.39 5.31 5.31 5.26 6.14 7.89 6.90 5.98 6.84 7.63 6.72 6.72

TYPES OF INFLATION

Open inflation

Suppressed inflation

Creeping inflation

Galloping inflation

Hyper inflation

FORMS OF INFLATION

Demand-Pull inflation

Cost-Push inflation

Stagflation

Deflation

CAUSES OF INFLATION

FACTORS ON DEMAND SIDE:

o Increase in money supplyo Increase in disposable incomeo Deficit financingo Foreign exchange reserves

Contd……

FACTORS ON SUPPLY SIDE

oRise in administered pricesoErratic agriculture growthoAgricultural price policyo Inadequate industrial growth

CONSEQUENCES OF INFLATIONAdverse effect on production

Adverse effect on distribution of income

Obstacle to development

Changes in relative prices

Adverse effect on the B.O.P

MEASURES OF INFLATIONMonetary policy

Fiscal policy

Wage control

Price control

Indexation

CONSUMER PRICE INDEX• A consumer price index (CPI) is a statistical estimate of the

level of prices of goods and services bought for consumption purposes by households.

• The change in the CPI is a measure of inflation, and can be used for evaluation of wages, salaries, pensions, or regulated or contracted prices.

• The CPI is one of the most important products of national statistical offices.

• The consumer price index numbers of Maharashtra for agricultural labourers and rural labourers registered the highest increase of 27 points.

WHOLESALE PRICE INDEX

The Wholesale Price Index (WPI) was first published in 1902.It consists of over 2,400 commodities.

The Wholesale Price Index or WPI is the price of a representative basket of wholesale goods.

The Wholesale Price Index focuses on the price of goods traded between corporations, rather than goods bought by consumers, which is measured by the Consumer Price Index.

COMPOSITION OF WHOLESALE PRICE INDEX

• The wholesale price index comprises of the following indices:– Domestic Wholesale Price Index (DWPI)– Export Price Index (EPI)– Import Price Index (IPI)– Overall Wholesale Price Index (OWPI)

• The WPI covers five commodity groups - agriculture; manufacturing; quarrying; import and export; and mining.

FEATURES OF WHOLE SALE PRICE INDEX

It captures the price movement extensively and therefore taken as a indicator of inflation.

The index is published weekly with the shortest possible time gap of two weeks.

It is used to analyze the market activity and the monetary conditions in an economy.

It focuses on the changing nature of the economy of different kinds of services such as railways, road transportations, telecommunications,etc.

These features highlight the utility of this index in monitoring ongoing changes in an economy in order to suggest the need for any adjustment.

CONCLUSION