Inflation means generally a considerable and persistent rise in the general level of prices .

According to Ackley inflation is persistent and appreciable rise in the general level of average of prices Inflation means a persistent and appreciable increase in the general level of prices . A moderate rate of inflation is considered to be desirable for the economy. .the limit of desirable inflation varies from country to country and from time to time . Desirable rate of inflation can be determined on the basis of 1) keeping economic outlook optimistic and helping production and employment 2) promoting mobilization of resources (savings an investment ) by what is called inflationary method of financing Inflation is usually estimated by calculating the inflation rate of a price index, usually the Consumer Price Index. The Consumer Price Index measures prices of a selection of goods and services purchased by a "typical consumer". The inflation rate is the percentage rate of change of a price index over time.

TYPES OF INFLATION:
Demand-pull Inflation:
Demand-pull inflation is also called as wage or excess demand inflation. This type of inflation occurs when total demand for goods and services in an economy exceeds the available supply. this, leading to a situation called as demand-pull inflation. War produces this type of inflation as demand for war materials and manpower grows rapidly during that time.

Cost-push Inflation:
As the name suggests, when the cost of production of goods and services increases, there is likely to be an increase in the prices of finished goods and services. For instance, a rise in the wages of laborers is what raises the unit costs of production and thus raises price. This is less common than demand-pull inflation. This type of inflation may or may not occur in conjunction with demand-pull inflation.

Pricing Power Inflation:

Pricing power inflation is more often called as administered price inflation. This type of inflation occurs when the businesses decide to increase their prices to increase their profit margins. Pricing power inflation does not occur at the time of financial crises and economic depression, or when there is a downturn in the economy. This type of inflation is also called as oligopolistic inflation because oligopolies have the power of to

set their own prices.

Sectoral Inflation:
This is the fourth major type of inflation. The sectoral inflation takes place when there is an increase in the prices of the goods and services produced by a certain sector of industries. For instance, an increase in the cost of crude oil would directly affect all the sectors, which are directly related to the oil industry. Thus, the ever-increasing price of fuel has become an important issue related to the economy all over the world. This would lead to a widespread inflation throughout the economy. If this situation occurs when there is a recession in the economy, there would be layoffs and it would adversely affect the work force and the economy in turn

Hyperinflation:
Hyperinflation is also known as runaway inflation or galloping inflation. This type of inflation occurs during or soon after a war. This can usually lead to the complete breakdown of a countrys monetary system. However, this type of inflation is shortlived. In 1923, in Germany, inflation rate touched approximately 322 percent per month with October being the month of highest inflation. THEORIES

DEMAND-PULL INFLATION:
The demand-pull theory suggests that inflation occurs when aggregate demand exceeds aggregate supply; essentially, the number of people wanting to purchase goods and services outweighs what is available. When more people want to spend money on something, the price will increase to account for the greater demand. This scenario is typically associated with a strong economy and low unemployment, when more people put money into the economy.

COST-PUSH INFLATION:
Cost-push inflation occurs when goods and services become more expensive to produce, which means prices increase to maintain a desirable profit margin. A shortage of raw materials also can contribute to cost-push inflation. One example of this was the 1973 oil crisis, when some Middle Eastern and North African countries placed an embargo on oil exports to the U.S.

MONETARIST THEORY:
The monetarist theory suggests the money supply determines inflation, which

occurs when the rate of a country's income rises faster than economic growth. If additional money is pumped into the economy while prices of goods and services remain the same, it will potentially result in inflation. Top causes of an increased money supply are banks increasing lending, or central banks, such as the Federal Reserve, printing more money and buying government assets.

KEYNESIANS THEORY:
According to Keynesian, inflation can be caused by increase in demand and/or increase in cost. Demand-pull inflation is a situation where aggregate demand persistently exceeds aggregate supply when the economy is near or at full employment. Aggregate demand could rise because of several reasons. A cut in personal income tax would increase disposable income and contribute to a rise in consumer expenditure. A reduction in the interest rate might encourage an increase in investment as well as lead to greater consumer spending on consumer durables. A rise in foreigners' income may lead to an increase in exports of a country. An expansion of government spending financed by borrowing from the banking system under conditions of full employment is another cause of inflation. An increase in demand can be met initially by utilising unemployed resources if these are available. Supply rises and the increase in demand will have little or no effect on the general price level at this point. If the total demand for goods and services continue to escalate, a full employment situation will eventually be reached and no further increases in output are possible. This leads to inflationary pressures in the economy.

Demand-pull inflation is caused by excess demand, which can originate from high exports, strong investment, rise in money supply or government financing its spending by borrowing. If firms are doing well, theey will increase their demand for factors of production. If the factor market is already facing full employment, input prices will rise. Firms may have to bid up wages to tempt workers away from their existing jobs. It is most likely that during full employment conditions, the rise in wages will exceed any increase in productivity leading to higher costs. Firms will pass the higher costs to consumers in the form of higher prices. Workers will demand for higher wages and this will add fuel to aggregate demand, which increases once again. The process continues as prices in the product market and factor market are being pulled upwards. Keynesian theory of cost-push inflation attributes the basic cause of inflation to supply side factors. This means that according to Keynesian, rising production costs will lead to inflation. Cost-push inflation is usually regarded as being primarily a wage inflation process because wages usually constitute the greaer part of total costs. Powerful and militant trade unions who negotiate wage increases in excess of productivity are more likey to succeed in their wage claims the closer the economy is to full employment and the greater the problem of skill shortages. An increase in the price of coal, oil and many other basic inputs or even semimanufactured goods used as component parts in the production process will manifest itself as higher consumer prices. The oil crisis in 19731974 and 1970-80 resulted in many countries experiencing severe cost-push inflation. Inflation may occur when there is a depreciation of the home currency. A depreciation of a country's currency results in increases in the price of imported foodstuff, raw materials and capital equiment which then results in a rise in production costs. A significant increase in the level of indirect taxes(taxes on goods and services) will raise domestic prices independently of the state of demand and could be a causal factor in creating wage-push pressure on the economy. When firms are faced with higher wage costs, they push up the prices of their products to maintain their profits. Sometimes, they may even seize the opportunity to increase their profit margins. The more price inelastic the demand for their goods, the less likely such behaviour will lead to a fall in demand for their products.

Cost push inflation in inevitable when there is a struggle between workers and firms. Both try to maintain their real incomes by bidding up their wages and profits. Workers force firms to give inflationary pay increases while firms increase prices so as to raise their profit margins. Price rises are inevitable. This process is known as a wage-price spiral. In practice, it may not be easy to identify the primary cause of inflation. Demand pull and cost push inflation can occur together. An initial demand pull inflation may strengthen the power of trade unions which then use this power to drive up costs. Alternatively, an initial cost push inflation may encourage the government to expand aggregate demand to offset rises in unemployment. Once inflation is under way, it is not always easy to identify the underlying cause. Keynes' demand and cost push theories pointed out that the closer the economy is to full employment, the greater the inflationary pressure. The greater the rate of unemployment, the less the inflationary pressure.

CONTROLLING INFLATION:
Mentioned below are some methods, which have proved to be highly effective in controlling inflation to large extents:

FISCAL POLICY:
Fiscal policies are effective in increasing the leakage rates from the circular income flow, thereby rejecting all further additions into this particular flow of income. This brings about a reduction in the Demand-Pull Inflation, in terms of increasing unemployment and slackening the economic growths. Following are a few types of fiscal policies commonly employed: basis High direct taxes, for reducing the disposable income. Lowering the expenses on governmental level A fall in the borrowing amounts in the government sectors, on an annual

MONETARY POLICY:
Monetary policies have a great role to play in controlling Inflation. These are policies which can actually control the rise in demand, by increasing the rates of interest and reducing the supply of real money. An escalation in the interest rates brings about a reduction in collective demands, in the following three ways:

A rise in the interest rate discourages borrowing from both companies and households. When interest rates increase, it simultaneously encourages the saving rate, owing to an escalation in the opportunity cost of expenditure.

Rise in the interest rates is a very useful tool for restricting monetary inflation. Increase in the real rates of interest decreases the demands for loans, thereby limiting the growth of broad money. There may also be a fall in the commercial investments, due to a rise in the costs of borrowing money. This exerts a direct influence on a handful of planned investment-related projects, which turn out to be unprofitable. This leads to a fall in the collective demand An increase in the payment of mortgage interests automatically decreases the real 'effective' disposable income of the house owners, as well as their spending capacities. Escalation in the mortgage costs also decreases the demand generated in the housing markets.

EXCHANGE RATE:
An escalation in the exchange rate is possible by increasing the rates of interest or buying money through the central band interferences in the foreign exchange markets. Mentioned below is a short-term mean by which inflation can be controlled through exchange rates: Income policies or direct wage controls: Setting restrictions on the growth rate of wages may decrease cost push inflation. Om governmental level, an attempt to influence the growth of wage leads to limit the rise in the pay in public sectors, as well as initiates cash restrictions for making payments to the employees of public sectors. As far as the private sector is concerned, the government attempts to convince the commercial firms and its employees to implement self-controls at the time of negotiating wages. Generally, there is a fall in the wage inflation when there is an economic depression, leading to a rise in the unemployment rates.

The Long term means of controlling the Inflation are as follows: Supply-side reform Policy: According to this policy, if more output is produced at a low per unit cost, there are chances for economy to attain persistent economic growth and development, without being affected by inflation. Policy regarding labor market reforms: If an increase in the flexibility of labor market permits the commercial forms to put a check on labor costs, it can lead to a reduction in the pressures created by the Cost-Push Inflation.