INFLATION

Presenting By: Jeevan Adhikari

Kabita Kafl e
Ankit Sharma Paudel
Ranjana Shibakoti
Ankit Chhetri
Dipesh Karki
Prasiddha Khanal
MEANING
In economics, inflation is a rise in the general level of
prices of goods and services in an economy over a
period of time. when the general price level rises, each
unit of currency buys fewer goods and services.
THEORY & CAUSES OF INFLATION
The main cause of inflation is the increase
in the demands of goods and services and at
the same time decrease in the supply of
goods and services.
There are two theories related to the causes
of inflation:
Demand – pull (when there is excess
demand)
Cost push (when cost rise)
Demand Pull Inflation
Demand pull inflation occurs when there is an
increase in aggregate demand, categorized by the four
sections of the macroeconomis: households,
businesses, governments, and foreign buyers.
 For example, an increase in government spending can
increase aggregate demand, thus raising prices.
 Demand pull inflation
 Demand pull inflation can also be shown on a
Phillips Curve. A rise in demand causes a fall in
unemployment (from 6% to 3%) but an increase in
inflation from inflation of 2% to 5%.
COST- PUSH INFLATION
Cost-push inflation occurs when we
experience rising prices due to higher costs
of production and higher costs of raw
materials.
Cost-push inflation can lead to lower
economic growth and often causes a fall in
living standards, though it often proves to
be temporary.
 COST PUSH INFLATION
 For example, In early 1970s, the Organization of Petroleum Exporting
Counties (OPEC) took steps to decrease global oil supply in order to
boost price levels. This resulted in a supply shock and an increase in
general prices, since oil is an important component of most production
processes. Since there was no increase in demand, this rise in
inflation can be attributed to Cost-Push Inflation.
Forms of inflation
Open inflation
The continuous rise in price level is visible in the
naked eye.
One can see the annual rate of increase in the price
level.
Galloping inflation
Vary rapid inflation which is almost impossible to
reduce.
Repressed Inflation
There is excess demand
The excess demand is prevented from
increasing price level by some repressive
measure
The measure taken by the government like
price control, rationing etc.
Hyper Inflation
The price level goes on rising at a very fast rate.
Often there happens hourly increase in price level.
It often leads to demonetization.
EFFECT OF INFLATION
• Effect depends on the speed of inflation and the
nature of the economy.
 Rising price of imports.
Lower national savings.
Redistribution of income & wealth
Collapse of monetary system
 Adverse impact socially &
politically
Discourage investment & savings
Higher interest/ income tax rates
 Monetary Policy
Monetary policy essentially implies the policy followed
by financial institution.
High interest rates and slow growth of money supply
are the traditional ways through which central bank
fight or prevent inflation
Fiscal measure
Reduction in unnecessary expenditure.
Increases in taxes
Increases in savings
Adopt surplus budget
Stop repayment of public debt until
inflationary pressure are controlled.
Other measures
To increase production
Rational wages policy
Price control
INFLATION IN NEPAL
The inflation rate in Nepal was recorded at
4.9% in 2019. Inflation rate in Nepal
averaged 8.18% from 1964 until 2019,
reaching an all time high of 30.42% in may
of 1966 and a record low of -11.54% in may
1967. Inflation rate in Nepal is reported by
the Nepal Rastra Bank.
Thank you