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Inflation rate in India:-
Today we will discuss the main topic of Economics which is useful for UPSC and Govt Exams’ point of view “Inflation rate in India”.
Definition of Inflation:-
A sustained increase in the general price level or decrease in the purchasing power of currency is called ‘Inflation‘.
Also, we can explain it in simple language as an “Increase in money supply and fall in production“. Opposite to inflation is deflation were there is a fall in the general level of prices.
Let’s take the eg here to understand:-
If we buy 10 kg of Sugar in 100rs and next week we got just 7.5 kg of Sugar in the same 100 rs so there is a rise in inflation. So in this eg there is inflation of about 3.33 rs, were in last week we got sugar for 10 rs per kg while in this week we got for 13.33 rs.
Inflation is silently robbing US
Causes of Inflation rate in India:-
1) Excess demand in the Public for resources.
2) Monetary Policy
3) Fiscal Policy
4) Corruption in Administration
5) Black Marketing
6) Hoarding (Storing)
Types of Inflation:-
There are two types of Inflation
1) Cost – Pull Inflation
2) Demand – Push Inflation
Cost – Pull Inflation:-
When there is an automatic increase in price while producing it. It can also be caused due to traveling problem so demand increases and fewer resources cause this inflation.
1)The rise in indirect taxes
2)Hoarding and Black Marketing
3)Rise in Minimum Support Price
4)Rise in International Market
5)Low growth in the agricultural sector
Demand Push Inflation:-
1) Rise in Population of State or district
2) Rise in Income
3) Black money is the biggest reason
4) Increase in borrowing
How is Inflation measured in India?
It can be measured in these two methods
1) Wholesale Price Index WPI
2) Consumer Price Index WPI
Let’s check it descriptive
Wholesale Price Index (WPI):-
It measures the changes in price which is sold in bulk quantity from one businessman to another one. It is the most widely used method for checking inflation in India. It is published by the Ministry of Commerce and Industry, also Office of Economic advisor interferes there.
In 2017 the base year was changed to 2011–12 from 2004-05. The problem here in this method is that the main middle class or general public don’t buy products from wholesale Price. So RBI has dropped it and no longer uses it.
Consumer Price Index:- CPI
It is the index that measures the change in the price of resources used by people. It is released by CSO i.e Central Statistics Office under the guidance of the Ministry of Statistics.
The base year of the Consumer Price Index is 2012, while in April 2014 RBI adopted it to check inflation through it.
There are about four types of CPI. They are as follows:-
1) CPI (Rural / Urban / Combined)
2) CPI for Rural Labourer (RL)
3) CPI for an agricultural laborer (AL)
4) CPI for Industrial Workers (IW)
Types of Inflation:- ( Measurement point of View)
2) Chronic Inflation:- If Creeping continues the next 2 – 3 months it leads to chronic inflation. The reason why it called chronic is it continues its momentum which may lead it to Hyperinflation.
3) Trotting Inflation:- When there is a price rise at a moderate level but keeps on increasing is known as Trotting Inflation. The price rise is between 3 % to 10 %. It is also a warning signal to the Country.
4) Running Inflation:-
Price rise at a rapid speed is referred to as Running Inflation. The price rise per annum is above 10 % and below 20 %. It affects the economy adversely.
5) Hyperinflation:- Worst Situation can be said as Hyperinflation. Where the price rise is above 20 % per annum. It can also be said as the collapsed of the Economy. This situation rises every decade once in every country.
Incase of Inflation debtors are happy and are gainers while creditors are disappointed as they come in the role of Losers.
Prof Brahmanand and Prof Wakeel compared inflation with robbers. Students make sure you read this book ‘How to pay for money’ written by Prof Keynes.
Some important terms related to Inflation:-
1) Stagflation :- Inflation + Unemployment
2) Deflation:- Reduction of the general level of price in Economy
3) Disinflation:- Decrease in the rate of Inflation
4) Stagnation:- When there is low national Income growth and High Unemployment
5) Reflation:- Deliberate action of govt to increase the rate of Inflation to redeem the economy from a deflationary situation
6) Core Inflation:- It is a measure of price rise in the economy excluding the price rise of some products.
7) Misery Index:- Rate of Unemployment + Rate of Inflation
8) Inflationary gap:– Aggregate demand > aggregate supply
9) Deflationary gap:– Aggregate supply > aggregate demand
10) Open Inflation:- When no control s done and price just gets increasing
11) Headline Inflation:- Commodities are considered here
12) Structural Inflation:–
Inflation caused due to structural problems
This was all about Inflation here we discussed Inflation terms, types, causes, methods to calculate, and some terms related to it. Hope this article had to help you gain some knowledge.