inflation is a rise in the general level of prices of goods and services in an economy over a

period of time.[1] When the price level rises, each unit of currency buys fewer goods and services;
consequently, inflation is also an erosion in the purchasing power of money – a loss of real value
in the internal medium of exchange and unit of account in the economy.[2][3] A chief measure of
price inflation is the inflation rate, the annualized percentage change in a general price
index (normally the Consumer Price Index) over time.

Inflation can have many effects that can simultaneously have positive and negative effects on an
economy. Negative effects of inflation include a decrease in the real value of money and other
monetary items over time; uncertainty about future inflation may discourage investment and
saving, or may lead to reductions in investment of productive capital and increase savings in non-
producing assets. e.g. selling stocks and buying gold. This can reduce overall economic
productivity rates, as the capital required to retool companies becomes more elusive or
expensive. High inflation may lead to shortages of goods if consumers begin hoarding out of
concern that prices will increase in the future. Positive effects include a mitigation of economic
recessions, and debt relief by reducing the real level of debt.

Economists generally agree that high rates of inflation and hyperinflation are caused by an
excessive growth of the money supply Views on which factors determine low to moderate rates of
inflation are more varied. Low or moderate inflation may be attributed to fluctuations
in real demand for goods and services, or changes in available supplies such as during scarcities,
as well as to growth in the money supply. However, the consensus view is that a long sustained
period of inflation is caused by money supply growing faster than the rate of economic growth.

Today, most mainstream economists favor a low steady rate of inflation.[5] Low (as opposed to
zero or negative) inflation may reduce the severity of economic recessions by enabling the labor
market to adjust more quickly in a downturn, and reduce the risk that a liquidity
trap prevents monetary policy from stabilizing the economy.[9] The task of keeping the rate of
inflation low and stable is usually given to monetary authorities. Generally, these monetary
authorities are the central banks that control the size of the money supply through the setting
of interest rates, through open market operations, and through the setting of banking reserve
requirements.
Types of Inflation
On the basis of rate of inflation
 Creeping Inflation – Rise in the price level at very low rate, around 2-
3% per annum is referred to as Creeping Inflation or Mild Inflation.
 Walking Inflation – A sustained price increase from 3 to 7 or below
10% is termed as walking inflation.
  Running Inflation – A sustained price rise from 10 to 20% per annum
is known as running inflation.
 Hyperinflation – Running inflation if not controlled turns into
Hyperinflation which is also known as Galloping or Jumping inflation.
On the basis of degree of control
 Open Inflation – Continuous rise in price without any interruption and
control from the government or any other authority is known as Open
Inflation.
 Suppressed Inflation – When price level in an economy is not
allowed to rise (though conditions exist for rise) through the use of
government policies like price controls and rationing, it is known as
Suppressed Inflation.
Causes of Inflation
Demand Pull Inflation – The inflation taking place due to demand pressures
is known as Demand Pull Inflation.
 Increase in 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.
Effect of Current Budget on Inflation
 India's wholesale price index rose 9.89 percent in February from a year
earlier, driven by higher food prices.
 It was higher than a median forecast of a 9.62 percent rise in a Reuters
poll and was higher than the previous month's annual rise of 8.56 per
cent.
At its January policy review, the RBI raised its WPI inflation projection for end-
March 2010 to 8.5 per cent

T oday, the biggest concern facing the country is rising prices. There is uproar in Parliament as political

parties jostle to grab as much mileage as possible from the government's apparent failure to curb runaway
inflation, as they try to sidle up to the aam aadmi who has been worst hit by skyrocketting prices.

Food inflation is hovering near 20 per cent. Everyone is facing the brunt of rising prices. Food prices are
soaring. . . all essential items like vegetables, oil, milk, sugar are getting costlier. Rentals and real estate
rates have almost doubled in just a few months in most cities. The real estate prices are at record highs
making life miserable, especially for people who have migrated to cities for jobs.

Inflation hits you badly as prices keep rising. You end up spending more money for things that you could buy
for les earlier. What you could buy for Rs 100, some months ago, would now cost you nearly double. As a
result, your savings will come down. As prices rise, the purchasing power of money goes down too.
Inflation hits retired folk and people with fixed incomes very badly. Inflation destablises the economy as
consumers and investors change their spending habits.

Economists attribute inflation to a demand-pull theory. According to this, if there is a huge demand for
products in all sectors, it results in a shortage of goods. Thus prices of commodities shoot up.

Another reason for inflation is the cost-push theory. It says that labour groups also trigger inflation. When
wages for labourers are increased, producers raise the prices of products to make up for salary hike.

The rising prices of food products, manufacturing products, and essential commodities have pushed inflation
rate further in India
nflation in Food and Non-food Commodities during 1994-95 to January 2010
(Based on WPI with base 1993-94) and Growth Rate in Food Output (%)

Item 1994- 2005 2006 2007 2008 2009 2010 Average

95 to January 2006-09
2004-
05

1. All 5.90 4.74 4.82 4.82 9.12 2.01 8.54 5.19

commodities

2. Non-food 6.02 5.37 4.72 4.54 9.55 -1.76 4.53 4.27

commodities

3. Food 5.91 3.94 6.83 7.02 6.64 12.32 17.41 8.20

articles

4. Food 5.33 1.58 2.55 3.43 9.80 13.79 22.55 7.39

products

5. Food 5.64 2.97 5.09 5.60 7.87 12.90 19.42 7.86

commodities
(3 and 4)

Foodgrains 5.54 3.83 9.71 6.27 6.37 14.14 17.89 9.12

Cereals 5.57 3.68 6.63 6.97 7.20 12.96 13.69 8.44

Pulses 5.46 5.04 32.05 2.14 1.30 21.81 45.62 14.33

Rice 5.00 4.01 2.13 6.05 8.97 15.96 12.02 8.28

Wheat 5.93 1.08 12.99 6.77 5.06 6.83 14.86 7.91

Oilseeds 5.89 -6.11 -3.96 26.58 17.46 0.92 10.05 10.25

Fruits and 7.47 7.51 2.24 6.49 5.94 11.77 8.33 6.61
vegetables

Dairy 5.20 0.11 4.20 6.08 8.38 6.12 12.87 6.19

products

Milk group 5.57 0.73 4.48 8.17 7.87 8.93 13.99 7.36
Egg, fish 6.46 9.46 6.72 6.38 3.75 14.44 30.71 7.82
and meat

Edible oils 4.85 -7.19 1.23 13.11 12.52 -6.59 -1.17 5.07

Sugar 4.06 15.09 4.83 -14.69 5.62 36.34 58.94 8.02

Growth in 2.39 0.55 5.87 4.10 5.39 1.60 -02 AE 4.24

food output
(%/a year)