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Inflation in Market Economies Causes & Control

This document discusses inflation in market economies, including its causes, measurement, and control. It defines inflation as rising prices that feed on themselves in a self-accelerating cycle. Inflation is measured using the Wholesale Price Index and Consumer Price Index. CPI is a more accurate measure and is used in most developed countries. Causes of inflation include increases in population, slow production growth, faulty distribution systems, and rises in oil prices internationally. Control methods involve accelerating production, improving distribution, social awareness programs, and monetary policies by the central bank like interest rate hikes.

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Ashish Jagetia
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169 views13 pages

Inflation in Market Economies Causes & Control

This document discusses inflation in market economies, including its causes, measurement, and control. It defines inflation as rising prices that feed on themselves in a self-accelerating cycle. Inflation is measured using the Wholesale Price Index and Consumer Price Index. CPI is a more accurate measure and is used in most developed countries. Causes of inflation include increases in population, slow production growth, faulty distribution systems, and rises in oil prices internationally. Control methods involve accelerating production, improving distribution, social awareness programs, and monetary policies by the central bank like interest rate hikes.

Uploaded by

Ashish Jagetia
Copyright
© Attribution Non-Commercial (BY-NC)
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPT, PDF, TXT or read online on Scribd

Inflation in Market Economies

Causes & Control


Inflation
 Inflation is a self accelerating process,
it is a phenomenon that feeds on itself
and initiate a very vicious cycle.
 Simply….

It means rising prices in market


economy.
 In economic terms…..

It means increased circulation of money


(more than required) in the market
Tool to measure
 Two major tools….
1. W.P.I Wholesale Price Index
It is based on 465 specified consumer
goods.
2. C.P.I Consumer Price Index
It is based on consumer itself.
 In India the inflation is calculated on WPI
weekly.
 In UK,US and most of the developed
countries has adopted CPI to measure
Inflation.
 CPI is more efficient to measure Inflation.
Why CPI ….
Causes of Inflation
General Causes

 Steep rise in population


 Slow increase in agriculture and industrial
production
 Faulty distribution and Marketing system
 Lack of consumer resistance.
 Smuggling
 Black money
 Increase in the price of OIL in the international
market.
Cont…
Monetary Causes
Wrong planning
Deficit financing
Unsound taxation
Wrong monetary policy
Inflation and Effects
 Fixed income group suffers more.
 Investment is diverted to non productive
assets.
 Export get a set back
 Getting difficult to survive for poor.
Other facts
Control
General
Accelerating production
Effective distribution system
Social awareness
A suitable policy to control population
Public support to keep an eye on erring
businessmen.
Cont…
RBI policy to curb inflation
By increasing interest rates
CRR hike
SLR hike
Absorbing excess liquidity

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