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Inflation is an increase in the total stock of money.

As the consequence of that, so called price inflation occurs and is revealed in a rise in general level of prices of goods and services over time. Although "inflation" is sometimes used to refer to a rise in the prices of a specific set of goods or services, a rise in prices of one set (such as food) without a rise in others (such as wages) is not included in the original meaning of the word. Inflation can be thought of as a decrease in the value of the unit of currency..[citation needed] It is measured as the percentage rate of change of a price index[1] but it is not uniquely defined because there are various price indices that can be used. Many economists believe that high rates of inflation are caused by high rates of growth of the money supply.[2] Views on the factors that determine moderate rates of inflation are more varied: changes in inflation are sometimes attributed to fluctuations in real demand for goods and services or in available supplies (i.e. changes in scarcity), and sometimes to changes in the supply or demand for money. In the mid-twentieth century, two camps disagreed strongly on the main causes of inflation at moderate rates: the "monetarists" argued that money supply dominated all other factors in determining inflation, while "Keynesians" argued that real demand was often more important than changes in the money supply. There are many measures of inflation. For example, different price indices can be used to measure changes in prices that affect different people. Two widely known indices for which inflation rates are reported in many countries are the Consumer Price Index (CPI), which measures consumer prices, and the GDP deflator, which measures price variations associated with domestic production of goods and services.

Inflation is measured by calculating the percentage rate of change of a price index, which is called the inflation rate. This rate can be calculated for many different price indices, including:

Consumer price indices (CPIs) which measure the price of a selection of goods purchased by a "typical consumer." In the UK, an alternative index called the Retail Price Index (RPI) uses a slightly different market basket. Cost-of-living indices (COLI) are indices similar to the CPI which are often used to adjust fixed incomes and contractual incomes to maintain the real value of those incomes. Producer price indices (PPIs) which measure the prices received by producers. This differs from the CPI in that price subsidization, profits, and taxes may cause the amount received by the producer to differ from what the consumer paid. There is also typically a delay between an increase in the PPI and any resulting increase in the CPI. Producer price inflation measures the pressure being put on producers by the costs of their raw materials. This could be "passed on" as consumer inflation, or it could be absorbed by profits, or offset by increasing productivity. In India and the United States, an earlier version of the PPI was called the Wholesale Price Index.

Commodity price indices, which measure the price of a selection of commodities. In the present commodity price indices are weighted by the relative importance of the components to the "all in" cost of an employee. The GDP Deflator is a measure of the price of all the goods and services included in Gross Domestic Product (GDP). The US Commerce Department publishes a deflator series for US GDP, defined as its nominal GDP measure divided by its real GDP measure. Capital goods price Index, although so far no attempt at building such an index has been made, several economists have recently pointed out the necessity of measuring capital goods inflation (inflation in the price of stocks, real estate, and other assets) separately.[citation needed] Indeed a given increase in the supply of money can lead to a rise in inflation (consumption goods inflation) and or to a rise in capital goods price inflation. The growth in money supply has remained fairly constant through since the 1970s however consumption goods price inflation has been reduced because most of the inflation has happened in the capital goods prices.

Other types of inflation measures include:


Regional Inflation The Bureau of Labor Statistics breaks down CPI-U calculations down to different regions of the US. Historical Inflation Before collecting consistent econometric data became standard for governments, and for the purpose of comparing absolute, rather than relative standards of living, various economists have calculated imputed inflation figures. Most inflation data before the early 20th century is imputed based on the known costs of goods, rather than compiled at the time. It is also used to adjust for the differences in real standard of living for the presence of technology. This is equivalent to not adjusting the composition of baskets over time.

Monetary Authorities with the largest foreign reserves in 2008. Rank Country/Monetary Authority billion USD (end of month) change in year 2007 1 China $ 1756 (April) 1 +43.3% 2 Japan $ 1004 (April) +8.7% 2 [1] 3 Russia $ 568 (July 1) +56.8% Eurozone $ 563 (March) +16.6% 4 India $ 312 (June 20) 2 +64.4% [2] 5 Republic of China (Taiwan) $ 290 (May) +2.7% 6 South Korea $ 260 (April) +9.7% 3 7 Brazil $ 199 (May 20) +105.9% 8 Singapore $ 176 (April) +19.1% 9 Hong Kong $ 160 (April) +14.6% 10 Germany $ 144 (April) +20.3%

foreign reserves
With India's forex reserves inching towards the $200-billion mark, there is the view that the cornucopia should be used more effectively, in creating infrastructure. Rather than do that, the Government ought to revamp the regulatory framework and allow investors to realise the true potential of the infrastructure sector, says ASHOAK UPADHYAY.

Indias total foreign exchange reserve have increased from USD 5.8 billion at the end of March 1991 to USD 313 billion plus at the end of April 2008. The spectacular rise in reserves has drawn attention to the issue of what is an adequate level of reserve for the country. Several factors may explain how much foreign exchange reserves a country wants to hold. One factor is related to the size of international financial transactions that occur there; that is, reserves holdings are likely to increase both with the size of the countrys population and with its standard of living.

Friday, February 22, 2008


India Wholesale Inflation and Foreign Exchange Reserves February 9 2008
India's wholesale inflation accelerated more than expected to a sixmonth high in the first week of February as prices of vegetables, fruits and lentils rose. Wholesale prices climbed 4.35 percent in the week ended Feb. 9 from a year earlier, faster than the previous week's 4.07 percent gain, the Ministry of Commerce and Industry said today in New Delhi.

The index of manufactured goods, accounting for 64 percent of the inflation basket, rose 0.4 percent in the week. Primary articles, with 22 percent weight, rose 0.6 percent, the statement said. Such week on week increases are, of course, quite large. Indian inflation is likely to accelerate further in coming weeks on higher energy and food costs, and in particular following the government decision last week to raise gasoline prices by about 4.5 percent, the first increase since June 2006. Crude oil reached a record $101.32 per barrel in New York on Feb. 20. Bonds remained lower after the release of the inflation report. The price of the most-traded 7.99 percent note maturing in July 2017 fell 0.04, or 4 paise per 100 rupee face amount, to 102.65 as of 12:45 p.m. India's central bank last month left its benchmark interest rates unchanged near a six-year high, citing concern that fuel and food costs may continue to fan inflation. The aggregate inflow of funds seems to have resumed in the week ending 15 February, after falling back slightly in the previous week (see chart below) as importers bought dollars in large quantities according to foreign exchange reserve data from the Reserve Bank of India. However, even if aggregate totals are rising, there is some evidence that some areas of investment are losing ground, at least according to data from the Securities and Exchange Board of India, who note that funds based abroad have sold Indian equities worth $2.9 billion more than they have bought so far this year, after making record net purchases of $17.2 billion in 2007. A sign of some hesitation in global risk appetite perhaps. One result of this has been that the benchmark Indian share index has lost 14 percent this year after advancing 47 percent last year.

Meanwhile the rupee headed for a third weekly decline, its longest losing streak since July 2006, as the falling currency may have encouraged companies to continue to increase their purchases of the dollars they need to pay for imports. The rupee fell this week past the 40-per-dollar level for the first time since September after oil prices climbed to a record, stoking speculation Indian refiners will buy more dollars to pay for costlier crude imports, and looks set for its biggest weekly loss since November following the data showing that overseas funds also withdrew part of their investments in Indian equities. The rupee weakened 0.8 percent this week to 39.995 per dollar as of 10:28 a.m. in Mumbai this morning. The currency fell as low 40.2375 on Feb. 20, its weakest level since Sept. 19, 2007.