INFLATION

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.
 CAUSE OF INFLATION

DEMAND-PULL INFLATION
- THE INFLATION TAKING PLACE DUE TO DEMAND PRESSURES IS
KNOWN AS DEMAND-PULL INFLATION.
• INCREASE QUANTITY OF MONEY
• INCREASE IN BUSINESS OUTLAYS OR GOVERNMENT EXPENDITURE
• FOREIGN EXPENDITURE ON GOODS AND SERVICES
 COST-PUSH INFLATION

- INCREASE IN THE OVERALL PRICE LEVEL DUE TO COST-PRESSURES

IS KNOWN AS COST-PUSH OR SUPPLY SIDE INFLATION.
• HIGHER WAGE RATES
• HIGHER PROFIT MARGINS
• HIGHER TAXES
• HIGHER PRICES OF INPUT
 QUANTITY THEORY OF MONEY

- STATESTHAT MONEY SUPPLY AND PRICE LEVEL IN AN

ECONOMY ARE IN DIRECT PROPORTION TO ONE ANOTHER.
WHEN THERE IS A CHANGE IN THE SUPPLY OF MONEY,
THERE IS A PROPORTIONAL CHANGE IN THE PRICE LEVEL
AND VICE-VERSA.
 RETAIL PRICE INDEX (RPI)

- IS AN OLDER MEASUREMENT OF INFLATION THAT IS STILL

PUBLISHED BECAUSE IT IS USED TO CALCULATE COST OF
LIVING AND WAGE ESCALATION; HOWEVER, IT IS NOT
CONSIDERED AN OFFICIAL INFLATION RATE BY THE
GOVERNMENT.
 WHOLE PRICE INDEX

- IS AN
INDEX THAT MEASURES AND TRACKS THE CHANGES IN THE
PRICE OF GOODS IN THE STAGES BEFORE THE RETAIL LEVEL. THIS
REFERS TO GOODS THAT ARE SOLD IN BULK AND TRADED BETWEEN
ENTITIES OR BUSINESSES (INSTEAD OF BETWEEN CONSUMERS).
USUALLY EXPRESSED AS A RATIO OR PERCENTAGE, THE WPI SHOWS
THE INCLUDED GOODS' AVERAGE PRICE CHANGE; IT IS OFTEN SEEN
AS ONE INDICATOR OF A COUNTRY'S LEVEL OF INFLATION.
THAT’S ALL. THANK YOU.