Inflation in india

By Sachin Khamkar (SMBA11 BATCH) 1

INFLATION
Inflation is nothing more than a sharp

upward rise in price level.

Too much money chasing, too few goods. Inflation is a state in which the value of

money is falling i.e. price are rising.

INDIA INFLATION RATE

KINDS OF INFLATION
On the basis of rate of inflation On the basis of degree of control On the basis of causes Others

AROUND THE GLOBE (DATA UPTO 1ST JAN 2011)

CAUSES OF INFLATION
Demand pull inflation Cost push inflation

HOW TO CONTROL INFLATION

Monetary Measures Fiscal Measures Other Measures

MONETARY MEASURES
Credit Control Demonetization of Currency Issue of New Currency

FISCAL MEASURES
Reduction in Unnecessary Expenditure Increase in Taxes Increase in Savings Surplus Budgets Public Debt

OTHER MEASURES
To Increase Production Rational Wage Policy Price Control

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EXCHANGE RATE: FOREIGN VS DOMESTIC

HOW IS IT MEASURED?
Consumer Price Index Wholesale Price Index

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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.
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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 14

PROBLEMS WITH WPI

In present day service sector plays a key role in

Indian economy. Consumers are spending loads of money on services like education and health. And these services are not incorporated in calculation of WPI. WPI measures general level of price changes either at level of wholesaler or at the producer and does not take into account the retail margins. Therefore we see here that WPI does give the true picture of inflation. WPI is supposed to measure impact of prices on business. But we use it to measure the impact on consumers. Many commodities not consumed by 15 consumers get calculated in the index.

WEIGHT EDGE TO CPI & WPI

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INFLATION RATE
PI for a certain year - PI for a comparative year X 100 PI for a comparative year

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INFLATION RATES
Inflation Food inflation 2008 - 09 2010-11 10.45 13.51 9.36 14.0 13.2 9.01 8.33 13.0

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EFFECTS OF INFLATION
They add inefficiencies in the

market, and make it difficult for companies to Budget or plan Long Term. Uncertainty about the future purchasing power of Money discourages investment and saving. There also can be negative impacts to trade from an increased instability in currency exchanges price caused by unpredictable inflation. Higher income tax Inflation rate in the economy is higher than rates in other countries; this will increase exports and imports.

EXAMPLE
Increase Increase oil. Increase Increase in the price wheat. in the price of world in the price of rice. in the Price of CNG

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