MEANING,TYPES AND TREND OF INFLATION IN INDIA

• TRENDS IN PRICES AND INFLATION 1
  MEANING AND TYPES OF INFLATION
  INDIAN ECONOMY
  MACRO ECONOMICS
  SHASHI AGGARWAL ECONOMICS AND LAW CLASSES
• MEANING OF INFLATION

1. A PERSISTENT RISE IN PRICES IS CALLED INFLATION.
2. GREGORY,” INFLATION IS INCREASE IN THE QUANTITY OF PURCHASING POWER
3. PETERSON,” THE WORD INFLATION IN THE BROADEST POSSIBLE SENSE REFERS TO ANY INCREASE IN THE GENERAL PRICE LEVEL WHICH IS SUSTAINED AN NON SEASONAL IN CHARACTER
4. COULBOURN,” INFLATION IS THE STAGE OF TOO MUCH MONEY CHASING FEW GOODS.

• CAUSES OF INFLATION

• DEMAND PULL INFLATION:-RISE IN PRICE IS MAINLY DUE TO INCREASED DEMAND FOR GOODS. AS THE POPULATION IS GROWING AT RAPID SPEED AND THEY ARE DEMANDING MORE GOODS BUT SUPPLY OF GOODS IS LESS.DEMAND IS RISING BECAUSE OF MORE GROWTH OF POPULATION,RISING DISPOSABLE INCOME,BLACK MONEY,EXPANSION OF MONEY SUPPLY,DEFICIT FINANCING ETC
• COST PUSH INFLATION:-DUE TO RISE IN IN COST OF PRODUCTION DUE TO RISE IN INPUT PRICES,INCREASED WAGES,RISE IN INDIRECT TAXES,HIKE IN OIL PRICES,POOR TECHNOLOGY ETC
• KEYNESIAN VIEW OF INFLATION
• WITH REFERENCE TO THE LEVEL OF EMPLOYMENT

1. SEMI –INFLATION : INCREASE IN THE QUANTITY OF MONEY BEFORE FULL EMPLOYMENT LEADS TO INCREASE IN OUTPUT AND EMPLOYMENT. INCREASE IN PRICE LEVEL PRIOR TO FULL EMPLOYMENT IS TERMED AS SEMI INFLATION. DUE TO HINDRANCES IN MOBILITY OF FACTORS OF PRODUCTION. ALSO CALLED BOTTLE NECK INFLATION.
2. OPEN OR FULL INFLATION:  INCREASE IN THE QUANTITY OF MONEY AFTER FULL EMPLOYMENT LEADS TO RISE IN THE PRICE – LEVEL WHICH IS CALLED OPEN,FULL TRUE OR ABSOLUTE INFLATION

• TYPES OF INFLATION
• ON THE BASIS OF DEGREE OF GOVERNMENT CONTROL

1. OPEN INFLATION:-REFERS TO A SITUATION AT WHICH NO STEPS ARE TAKEN TO CONTROL RISING PRICES. PRICES ARE ALLOWED TO RISE WITHOUT ANY ATTEMPT ON THE PART OF THE GOVERNMENT TO CONTROL. GOODS ARE DISTRIBUTED THROUGH PRICE MECHANISM
2. SUPPRESSED INFLATION:-RISING PRICES ARE CHECKED BY GOVERNMENT BY TAKING ADMINISTRATIVE STEPS LIKE RATIONING,PRICE CONTROL ETC. IT IS DANGEROUS THAN OPEN INFLATION. UNDER SUPPRESSED INFLATION PRICE MECHANISM BECOMES UN OPERATIVE AND BLACK MARKET,CORRUPTION AND RESOURCES ARE INEQUITABLY DISTRIBUTED

• CLASSIFICATION ON THE BASIS OF TIME

1. WAR TIME INFLATION:-THAT TAKES PLACE DURING THE COURSE OF WAR. IN ORDER TO MEET WAR EXPENSES GOVERNMENT INCREASE THE SUPPLY OF MONEY. BUT DURING WAR,PRODUCTION IS MORE OF WAR MATERIAL THAN GOODS FOR PUBLIC
2. POST WAR INFLATION:-TENDENCY OF INFLATION PERSISTS EVEN AFTER THE WAR MAINLY DUE TO :

1. GOVERNMENT HAS TO SPEND LARGE AMOUNT ON REPAIRS AND RECONSTRUCTION OF DAMAGED PROPERTY
2. ABOLISHMENT OF TAXES LEVIED DURING WAR AND LOANS ARE REPAID

3. PEACE TIME INFLATION:-AS UNDER DEVELOP COUNTRIES REQUIRE HUGE RESOURCES FOR BOOSTING THE DEVELOPMENT PROCESS AND IT LEADS TO DEFICIT FINANCING WHICH IN TURN LEADS TO RISE IN PRICES

• ON THE BASIS OF RATE OF INFLATION

1. CREEPING INFLATION : SLOW PRICE RISE ( 3% RISE IN PRICE). SUCH AN INFLATION IS NOT BAD FOR THE ECONOMY. ESSENTIAL FOR THE GROWTH OF THE ECONOMY
2. WALKING INFLATION : INTENSE AND GAINS MOMENTUM . WHEN OVER A DECADE PRICE RISE BETWEEN 3 TO 8%.IT IS CALLED WALKING INFLATION
3. RUNNING OR GALLOPING INFLATION:- RAPID INCREASE IN VERY SHORT PERIOD 8 TO 12%. SUCH INFLATION HAS ADVERSE AFFECT ON MIDDLE AND POOR CLASSES.DISCOURAGES SAVING
4. HYPER INFLATION : HYDRA HEADED INFLATION . PRICE RISE AT AN EXPECTED RATE. IT PUTS THE ENTIRE ECONOMY OUT OF GEAR.

• CLASSIFICATION ON THE BASIS OF SCOPE

1. SECTORAL SPORADIC INFLATION:-WHEN INFLATION AFFECTS ONLY A PARTICULAR PART OR SECTOR OR COVERS ONE OR TWO GOODS
2. COMPREHENSIVE INFLATION: NOT CONFINED TO GIVEN PART OF THE COUNTRY BUT COVERS THE ENTIRE COUNTRY

• ACCORDING TO PROCESS

1. WAGE INDUCED INFLATION: POWERFUL LABOUR ORGANIZATION DEMAND HIGHER WAGES AND IT IN RETURN INCREASES THE COST OF GOODS
2. PROFIT INDUCED:-BIG COMPANY MAKE CARTELS AND FIX HIGHER PRICES BY ADDING HUGE MARGINS.
3. DEFICIT INDUCED:-DUE TO INCREASE IN THE MONEY SUPPLY DUE TO DEFICIT FINANCING BUT NO INCREASE IN THE PRODUCTION,
4. DEMAND PULL INFLATION:-AGGREGATE DEMAND EXCEED AGGREGATE  SUPPLY OF GOODS AND SERVICES

5. COST PUSH INFLATION
6. CAUSED DUE TO INCREASE IN THE COST OF PRODUCTION DUE:

1. INCREASE IN THE COST OF RAW MATERIALS
2. INCREASE IN TAXES AND DUTIES
3. INCREASE IN WAGES WITHOUT INCREASE IN PRODUCTIVITY

• INFLATION IN INDIA
• MANY DEVELOPING COUNTRIES USE CHANGES IN THE CONSUMER PRICE INDEX AS THEIR CENTRAL MEASURE OF INFLATION IN INDIA. IN INDIA ALSO USES CHANGES IN THE CPI TO MEASURE INFLATION.
• THE INFLATION RATE IS CALCULATED USING THE PRICE INCREASE OF DEFINED PRODUCT BASKET
• TRENDS IN INFLATION
• RISE IN PRICE BEFORE INDEPENDENCE: PRICES HAVE BEEN RISING SINCE 1939. PRICE INDEX WAS 100 AND IT ROSE TO 308 IN 1947 -48
• RISE IN PRICE AFTER INDEPENDENCE TO YEAR 1952: PRICE INDEX ROSE TO 462
• PRICE RISE DURING FIRST FIVE YEAR PLAN (1951-56) IT WAS 3.6%
• RISE IN PRICES DURING SECOND FIVE YEAR PLAN:-PRICE RISE OF 6.2%
• THIRD FIVE YEAR PLAN(1961-66): 5.8% ON AVERAGE
• FOURTH FIVE YEAR PLAN(1969-74) PRICE ROSE BY 9%
• FIFTH FIVE YEAR PLAN 1974-78: ROSE BY AVERAGE 6,3%
• SIXTH FIVE YEAR PLAN (1980-85) 6,7%

·         SEVENTH FIVE YEAR PLAN(1985-1990) 6.7%

• EIGHTH FIE YEAR PLAN(1992-19970 6,6%

 ·         NINTH FIVE YEAR PLAN(1997-2002) IT WAS 3.9%

·         TENTH FIVE YEAR PLAN (2002-2007) 5%

·         ELEVENTH FIVE YEAR PLAN(2007-2012) 7,33%