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Inflation
1. Creeping Inflation: It is the mildest form of inflation where prices rise by not more than 3% per annum. 2. Walking Inflation: In the case of walking inflation the prices rise by more than 3% but less than 10% per annum. 3. Running Inflation: An economy is said to be encountering the Running Inflation, when the rate of inflation is 10% to 20% per annum (double digit inflation rate). 4. Galloping Inflation: If the prices rise by more than 20% but less than 1000% per annum, galloping inflation occurs. It is also referred to as jumping inflation. India has been witnessing galloping inflation since the second five year plan period. 5. Hyperinflation: Hyperinflation refers to a situation when prices rise above 1000% per annum (quadruple or four digit inflation rate). In case of hyperinflation there is such rapid rise in the price level and fall in value of money that people start losing faith in the paper currency of the government. During a worst case scenario of hyperinflation paper money becomes worthless. Two worst examples of hyperinflation recorded in world history are of those experienced by Hungary in year 1946 and Zimbabwe during 2004-2009. 6. Stagflation: It is a situation where inflation coexists with stagnation i.e. recession and unemployment. Classical economics referred this situation as paradoxical. 7. Recession: It is defined as the situation in the economy which is marred by a negative growth rate of GDP for two or more successive quarters. 8. Core Inflation: It refers to inflation which does not include the impact of such factors which are beyond the control of the government. For example international oil prices etc. 9. Depression: It an extreme form of recession where there is contraction in business cycles, fall in demand and investments, rise in unemployment levels, which results to business pessimism and total collapse of economy. In technical terms an economy is encountering depression if either of the following two conditions holds good: A decline in real GDP exceeding 10%. A recession lasting 2 or more years i.e. negative growth rate of GDP for eight or more successive quarters.
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Causes of Inflation
Inflation may be caused by either an increase in the money supply (demand pull) or a decrease in the quantity of goods (cost push) being supplied.
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Inflation
Consequences of Inflation
On development:
Inflation severely affects the condition of marginalized and economically weaker section of the society. It hampers the food security by making the food commodities unaffordable. It also reduces the spending on access to basic healthcare and education when the bulk of the earnings of the poor household goes in the food bill. Inflation escalates the cost of various developmental and infrastructure projects, thus retarding their pace and feasibility.
On income inequality:
Inflation can result into the malpractices like speculation, black marketing and hoarding. It can also lead to increase in black money. All these factors augment the income inequalities and corruption in the society.
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Inflation
Monetary Policy
Through monetary policy the supply of money is regulated is the market. Inflation refers to a state in the economy where too much money chases too little goods and services, thus the aim of monetary policy to curb inflation is to reduce the money supply from the market. By adjusting Bank Rate, Cash Reserve Ratio (CRR), Statutory Liquidity Ratio (SLR), Repo rate, Reverse repo rate etc the central bank can reduce the money supply from the market.
Fiscal Policy
The aim of fiscal policy while curbing the inflation is to reduce the government expenditure. The aim is to especially reduce the spending under the non plan expenditure. On the other hand the reduction in indirect taxes like VAT, sale tax etc could also help in curbing the cost push inflation.
Administrative measures
The following can be the administrative mechanisms to curb the inflation in the country: 1. Curbing the malpractices like black marketing and hoarding. 2. Strengthening the Public Distribution System (PDS) in the country 3. Timely liberalizing the import of such essential commodities like sugar, edible oils etc where there had been shortfall. 4. Temporary ban on the export of such essential commodities which have been facing shortfall in the domestic markets. For e.g. in 2008-09, government of India banned the export of non-Basmati rice.
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Inflation
India is perhaps the only major country that uses WPI to measure inflation. In most of the countries the consumer indices are used to calculate inflation.
Comments
# Tejaswi
2012-05-17 23:16
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# Tejaswi
2012-05-17 23:20
Inflation
-1 Reply | Reply w ith quote | Quote
2012-10-01 22:10 -1 Negative grow th rate during recession w ould mean fall in grow th rate or fall in grow th(GDP) ? Reply | Reply w ith quote | Quote
# Jagadeesh
2012-10-30 13:19
2013-05-02 10:25
Dear team, WPI significantly reduces the numerical value of inflation as services are not accounted for and moving to PPI w ould further low er the numerical value of inflation. This w ould give some breathing space to the government in its fiscal policy approach. But how w ould the consumer w ho are most effected by inflation as significant amount from their savings goes into buying essential commodities be relieved from inflation ? NOTE :- PPI w ould address constraints at producer level only and it w ould still not take into account the services and challenges at consumer levels. Reply | Reply w ith quote | Quote
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