Inflation

* Money supply exceed the supply goods a d services.

* additional money creation due to budget deficit

* rising price but not high in prices.

* Devaluating the worth of money.

* Reduce purchasing power of money.

* Inflation Rate= {(Price in current year - price in previous year)/ Price in previous year} ×100

Deflation- Rise the value of money and purchasing power.

Types of inflation- 

A. On the basis of causes- 

1. Currency inflation- caused by printing of currency notes.

2. Deficit induced inflation- when government expenditure exceeds revenue then to meet this gap, government may ask to the rbi for print the additional money to overcome the budget deficit. This may come price rise.

3. Demand pull inflation-  Rise in demand over available output may rise the price.

Economy exceeds the available goods and services, DPI appears.

 Coulborn- "Too much money chasing too few goods."

4. Cost push inflation- Overall increase in cost of production called CPI.

Rise in the price of raw materials and wages of labours.

2 Categories

1. Wage push inflation

2. Profit push inflation

B. On the basis of speed or intensity- 

1. Creeping or Mild Inflation:-

continuous rise in price wrt time. it can't be preassumed by economists.

2. Walking Inflation:- When range is fixed of annual price increment. (may converted into Running Inflation)

Above two type of inflation called moderate inflation (one digit inflation)

3. Galloping and Hyperinflation:- When inflation rate increase in multiplication factors so dangerous situation appears.

4. Government's reaction to inflation- persude anti inflationary policies.

Decrease the consumption rate via high price of products.

Measurements of inflation:-

Two main set of inflation indicies measuring price level change in India

1. The Wholesale Price Index (WPI)- Decided by wholesalers.

Published by Officer of economic Adviser, Ministry of commerce and industry use since 1942 and published from 1947 regularly.

2. Consumer Price Index (CPI)- Decided by retailers

CPI for industrial labours CPI-IL

CPI for Agriculture Labour CPI-AL

CPI for rural labour CPI-RL