INFLATION

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Slide 1: 

INFLATION

GROUP MEMBERS : 

GROUP MEMBERS Chandrakant Jagadale Ashish Chavan Amruta Navale Adwait Karpe Ketan Shinde Swapnil Chavan Sachin Pawar Sanket Chaturvedi Mohommad Sajjad Nikhil Ubale Mukesh Sharma

Introduction : 

Introduction Inflation generally means rise in prices. Inflation is an increase in the price of a basket of goods and services that is representative of the economy as a whole. It is a persistence and substantial rise in general level of prices after full employment level of output.

Definition : 

Definition a general and progressive increase in prices; "in inflation everything gets more valuable except money” In economics, inflation is a rise in the general level of prices of goods and services in an economy over a period of time....

Slide 5: 

Eg: With Rs. 100 you can buy 5kgs of apple when the inflation is say, zero. Now when the inflation rate is 5%, then you will need Rs. 105 to buy the same quantity of apples. This is because there is more money chasing the same produce. Inflation reduces the real amount of savings in the long run. Common man is adversely affected when the annual rate of inflation is exceeding the current rate of interest. Continuous inflation also discourages the individual savings of a common man .

Types Of Inflation : 

Types Of Inflation

Types of Inflation : 

Types of Inflation Demand-pull Inflation Cost Push Inflation Monetary inflation Structural inflation Imported inflation

Terms Relating to Inflation : 

Terms Relating to Inflation Deflation Disinflation Reflation Stagflation

How to Calculate Inflation : 

How to Calculate Inflation

Measuring Inflation : 

Measuring Inflation Inflation is measured by calculating the percentage rate of change of a price index, which is called the inflation rate Consumer Price Index Wholesale Price Index

Consumer Price Index : 

Consumer Price Index CPI is a measure estimating the average price of consumer goods and services purchased by households. CPI measures a price change for a constant market basket of goods and services from one period to the next within the same area (city, region, or nation). It is a price index determined by measuring the price of a standard group of goods meant to represent the typical market basket of a typical urban consumer. The percent change in the CPI is a measure estimating inflation.

Wholesale Price Index : 

Wholesale Price Index WPI was published in 1902,and was one of the economic indicators available to policy makers until it was replaced by most developed countries by the CPI market. index in the 1970. WPI is the index that is used to measure the change in the average price level of goods traded in wholesale market. Some countries (like India and The Philippines) use WPI changes as a central measure of inflation. However, India and the United States now report a producer price index instead.

Causes of Inflation : 

Causes of Inflation

Causes of Inflation : 

Causes of Inflation For controlling the rates of commodity, we must know why these rates are rising i.e. inflating which means what are the reasons or causes behind inflation. There are various factors which causes inflation in the economy which is as follows- Monetary Factors Non-monetary Factors Structural Factors.

Monetary Factors : 

Monetary Factors Expansion Of Money Supply Increase in Disposable Income Increase in Consumer Spending Development And Non Development Expenditure Indirect Taxes Demand for Foreign Commodities

Non Monetary Factors : 

Non Monetary Factors Rising Population Natural Calamities Speculation and Black Money Bottleneck and Shortages

Structural Factors : 

Structural Factors Capital Shortage Infrastructural Bottlenecks Limited Efficient Entrepreneurs Lack of Foreign Capital

Effects of Inflation : 

Effects of Inflation

Economic Effects of Inflation : 

Economic Effects of Inflation Inflation is a very unpopular happening in an economy. Inflation is the most important concern of the people as it badly affects their standard of living. The effects/consequences of inflation are as follows – (a) Effects of inflation on production (b) Effects of inflation on income distribution (c) Effects on consumption and welfare (d) Effects on foreign trade (e) Social and political effects

Effect on Production or Economic Activities : 

Effect on Production or Economic Activities Favourable Effect When price rise profits increases, investment increases that generates income and creates employment as a results output expands. Unfavorable Effects Uncontrolled inflation leads to discouragement in savings due to falling value of money. Flight of capital is encouraged due to fall in money the investors prefer to invest abroad.

Effect on Distribution of Income:- : 

Effect on Distribution of Income:- As the value of money falls the burdens of debt is reduced and debtors gain creditor suffer because in real sense they receive less during inflation. (Debtors vs Creditors. ) Investors in shares benefit during inflation small savers, small investors and class lose during inflation. (Holders of fixed interest security vs Shareholders. ) Fixed income groups like salaried class and pensioners are hit hard during inflation.

Other Effects:- : 

Other Effects:- Effects on consumption and welfare Effects on foreign trade Social and political effects

Measures to Control Inflation : 

Measures to Control Inflation

Measures to control Inflation : 

Measures to control Inflation These are the following measures taken to control inflation 1) Monetary Measures 2) Fiscal Measures 3) Other Non-monetary Measures

Monetary Measures : 

Monetary Measures Raising Bank Rates Open Market Operations Variable Reserve Ratio Fixation of Margin Requirements Regulation of Consumer Credit Control through Directives

Fiscal Measures : 

Fiscal Measures Taxation Public Expenditure Public Borrowing Inducement to Save

Other Non monetary Measures : 

Other Non monetary Measures Increase in output Price control & Rationing Imports Wage Rates

Method Adopted to Calculate Inflation in India : 

Method Adopted to Calculate Inflation in India

Slide 29: 

India uses the Wholesale Price Index (WPI) to calculate and then decide the inflation rate in the economy WPI is the index that is used to measure the change in the average price level of goods traded in wholesale market. In India, a total of 435 commodities data on price level is tracked through WPI which is an indicator of movement in prices of commodities in all trade and transactions.

Slide 30: 

A Working Group for there vision of the index numbers for wholesale prices in India was constituted on December 26, 2003 under the Chairmanship of Prof. Abhijit Sen, Member, Planning Commission., the revised series of the Index of Wholesale Prices in India (Base 2004-05=100) in replacement of the earlier WPI series (Base 1993-94=100)

The classification structures adopted in the WPI (1993-94) series is as below:- : 

The classification structures adopted in the WPI (1993-94) series is as below:- Primary Articles Food Article  Non-Food Articles   Minerals Fuel, Power, Light & Lubricants

Slide 32: 

Manufactured Products  Beverages, Tobacco & Tobacco Products  Textiles Wood & Wood Products Paper & Paper Products   Leather & Leather Products   Rubber & Plastic products  Chemicals & Chemical Products Non-Metallic Mineral products Machinery & Machine tools Transport Equipment & parts http://eaindustry.nic.in/manual_out.htm

Inflation rates in India : 

Inflation rates in India Inflation rate as measured by the WPI with a revised base of 2004-05 decelerated to 8.5% in August, primarily due to fall in prices, of primary articles, compared to 9.8% in the previous month ---------Business Standard Newspaper (15/09/2010)

Contd : 

Contd Repo rate, the short-term lending rate, up to 6.0% Reverse repo rate, the short-term borrowing rate, up to 5.0% Cash reserve ratio (CRR) left unchanged at 6% Food price index rises to 15.1% Fuel price index climbs 11.48%

EFFECT ON OIL PRICES : 

EFFECT ON OIL PRICES India is among the most expensive places for oil Middle class have started using public transportation Rising oil prices is a concern especially with the growth in sales of automobiles More people have started using one mode of transportation example sharing of a car to go to office Demand for petroleum products has increased at 2.4% to 3.3 % every year

Small shops affected : 

Small shops affected Kirana stores have started feeling the heat . Some small shops have shut and others are considering getting into new businesses Prices of products or rice and pulses have gone up Inflation has hit low income group which has taken its toll on small retail stores and businesses

INFLATION IN BANK : 

INFLATION IN BANK The RBI may go for further monetary tightening in the light of rising inflation Yields are rising, compelling the banks to raise interest rates, which will hamper their business growth

Slide 38: 

Steps taken by the Government to control inflation (Ministry of Finance).

How Do Governments/Central Banks Control Inflation? : 

How Do Governments/Central Banks Control Inflation? Issue of money Bank rate Open market operation Cash reserve ratio Statutory liquidity ratio

Slide 40: 

THANK YOU

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