Inflation

Inflation and its effects, Inflation, its

causes and consequences
 Inflation
A general increase in the prices of goods
and services in an economy and a
subsequent drop in the value of money
over a period of time.

Too much money chasing limited

number of goods.

Disparity between aggregate demand

and aggregate supply
Types of Inflation
Creeping inflation: Inflation rate doesn’t
exceed the rate of production growth. It
remains < 10%

Galloping inflation: Inflation exceeds

the production growth rate. Varies
between 10%-100%.

Hyperinflation: Prices increase fast due

to loss in value of. It is over 100% /
year.
Types

Demand-pull inflation

Demand of a product exceeds supply

(reasons: black money, higher income
level, monetary Policy)

Cost-push inflation

Greater demand will drive up the price of a

product (reasons: wages, raw material)
Causes
Higher government spending causes
inflation as it goes for deficit financing

Hoarding of goods creates artificial

demand

Price-rise in international market

Increase in money supply/income/ public

expenditure
 Impact of Inflation
• Lower savings
• Import price increase
• Poor living standard
• Reduced purchasing power
• Income of businessmen increase while
decrease for salaried people
• Upsets the planning process
• Lenders loose while borrowers gain
Thanks