INFLATION

WHAT DO YOU MEAN BY INFLATION ?

A sustained rise in the general price level over a period

of time is known as “inflation”.

In other words it is defined as “the process by which price level rises and the money

loses its value”.

HOW TO MEASURE INFLATION ?

In India inflation is measured in two ways that are as follows:

WHOLESALE PRICE INDEX (WPI)

&

CONSUMER PRICE INDEX (CPI)

WHOLESALE PRICE INDEX (WPI)

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

goods.

India- the only major country that uses WPI (1st published in 1902)

CONSUMER PRICE INDEX (CPI)

A measure of the average price of consumer goods and services purchased by households (1st

published in 1970)

CPI indicates the change in the purchasing power of the consumer

Published on a monthly basis

HOW IS INFLATION MEASURED ?

WHOLESALE PRICE INDEX (WPI)

CONSUMER PRICE INDEX (CPI)

Index of prices prevailing in wholesale market

Covers a fixed basket of goods comprising primary articles, food articles, minerals, fuel prices, machinery etc.

Measured weekly in India;

The primary inflation measure used over here.

Index of prices prevailing in retail market.

Index representing the basket of essential commodities purchased by the average consumer-food, fuel, lighting, housing, clothing, articles etc.

Measured monthly in India; more popular measure in developed nations like USA, UK, JAPAN.

TYPES OF INFLATIONDEMAND PULL

INFLATIONCOST PUSH INFLATION

DEMAND PULL INFLATION

Demand pull inflation may be due to :

A)Rise in aggregate demand

B)Increase in money supply

C)Increase in government purchases

COST PUSH INFLATIONCost push inflation may arise

because of :

A)Increase in money wage rates

B)Increase in money prices of raw materials

IMPACT OF INFLATION

WHY INFLATION IS BAD ?

REMEDIES FOR INFLATION IN INDIA