INFLATION AND ITS TRENDS IN INDIAN ECONOMY

Manish kumar lal S.y.bcom

To study the causes and effects of inflation in the Indian economy and analyze its trends in the past few years.

Inflation can be defined as a rise in the general price level and therefore a fall in the value of money. Inflation occurs when the amount of buying power is higher than the output of goods and services. Inflation also occurs when the amount of money exceeds the amount of goods and services available.

Creeping inflation Trotting inflation Galloping inflation Hyper inflation

Demand-pull inflation Cost-push inflation

Imported Inflation

Rise in Crude oil prices

Rise in Food prices

Black Money GDP Wage rate wise Sub Prime crisis

435 commodities are used for the WPI based inflation calculation and base year for the WPI calculation is 1993-94. WPI is available at the end of every week (generally Saturdays), for a period of one year ended that day The wholesale price index comprises of the following indices:
Domestic Wholesale Price Index (DWPI) Export Price Index (EPI) Import Price Index (IPI) Overall Wholesale Price Index (OWPI)

Hoarding Increased risk Fixed income recipients Increased consumption ratio Lowers national saving Illusions of making profits Rising prices of imports Causes business cycles to go out of business

Strengthen local currency e.g. Indian Rupee The Reserve Bank of India (RBI) hikes the interest rates to control inflation. Government uses the fiscal policy to check inflation. Government to choose alternative of direct intervention Reforming long term labor related policies

Year 2003 2004 2005 2006 2007 2008 2009 2010 2011

Inflation rate (max. consumer prices) 5.40% 3.80% 4.20% 4.20% 5.30% 6.40% 8.30% 10.90% 11.70%

Percent Change -29.63% 10.53% 0.00% 26.19% 20.75% 29.69% 31.33% 7.34%

Date of Information 2002 est. 2003 est. 2004 est. 2005 est. 2006 est. 2007 est. 2008 est. 2009 est. 2010 est.

In 2009-10, increase in inflation was due to factors like food inflation hike. (Supply shortage of cereals, pulses, wheat, and rice due to drought in country) In 2010-11, high inflation is attributed to increased prices of fruits and vegetables (due to increase in demand) and increase in commodity prices e.g. crude oil.

Measures taken by Reserve Bank of India:

Headline inflation in May, 2011 rise to 8.72 %. Reserve Bank of India hiked key policy rates (repo rate and reverse repo) by 25 basis points.

Inflation continues posing a threat Inflation has been caused by rapid growth Fall in oil prices and higher interest rates will lead to reduction in inflation

Challenges for Indian Economy in 2011 Getting inflation under control Spreading the growth benefits more equitably. Completing investment projects that are essential for the long term development of economy. Dealing with global financial uncertainty that will make the capital flows and exports more difficult.

http://www.worldjute.com/inflation.html http://www.inflation.eu/inflation-rates/india/historicinflation/cpi-inflation-india-2011.aspx

http://business.rediff.com/report/2010/mar/04/budge t-2010-the-shocking-picture-of-inflation-in-india.htm
http://www.indexmundi.com/India/inflation_rate_%28c onsumer_prices%29.html