INFLATION  Prepared by:  Sanjay Hadiyal ( )  Ramoliya Chirag ( )  Hirapara Kevin ( )  Modhwadia Lakhan ( ) G H Patel College of Engineering & Technology G H Patel College of Engineering & Technology Electrical Engineering

WHAT IS INFLATION ?  It can be defined as the “as a rise in the general price level and therefore a fall in the value of money.”  Inflation is a rise in the general level of prices of goods and services over time. "Inflation" is used to refer to a rise in the prices of some specific set of goods or services, as in "commodities inflation".

Factors affecting inflation  Increase in the money supply.  Decrease in the demand for money.  Decrease in the aggregate supply of goods and services.  Increase in the aggregate demand for goods and services.

How is inflation Measured ? The 2 ways of measuring inflation

Types of Inflations  Creeping inflation  Trotting inflation  Galloping inflation  Hyper inflation  Monetary inflation  Structural inflation  Imported inflation

Major reasons of Inflation in India  Rise in Crude oil prices  Rise in Food prices  Black Money  GDP  Wage rate wise  Sub Prime crisis

Two major types of inflation

Measuring Inflation  435 commodities are used for the WPI based inflation calculation and base year for the WPI calculation is  WPI is available at the end of every week (generally Saturdays), for a period of one year ended that day  The wholesale price index comprises of the following indices:  Domestic Wholesale Price Index (DWPI)  Export Price Index (EPI)  Import Price Index (IPI)  Overall Wholesale Price Index (OWPI)

Inflation Control in India – 2011  Headline inflation in May, 2011 rise to 8.72 %.  Reserve Bank of India hiked key policy rates (repo rate and reverse repo) by 25 basis points.

Problems Due to Inflations  When the balance between supply and demand goes out of control, consumers could change their buying habits, forcing manufacturers to cut down production.  Inflation can create major problems in the economy. Price increase can worsen the poverty affecting low income household, Inflation creates economic uncertainty and is a dampener to the investment climate slowing growth and finally it reduce savings and thereby consumption.

Problems Due to Inflations  The producers would not be able to control the cost of raw material and labor and hence the price of the final product. This could result in less profit or in some extreme case no profit, forcing them out of business.  Manufacturers would not have an incentive to invest in new equipment and new technology.  Uncertainty would force people to withdraw money from the bank and convert it into product with long lasting value like gold, artifacts.

Inflation in india

Effects of Inflation  Hoarding  Increased risk  Fixed income recipients  Increased consumption ratio  Lowers national saving  Illusions of making profits  Rising prices of imports  Causes business cycles to go out of business

What is causing global food inflation?  Newspapers have cited an internal World Bank document as having found that 75% of the price increase was due to biofuels.  Several governments and commentators see speculation as a major driving force.  A widely held view has it that rapidly growing food demand in the emerging economies is pushing up global food prices.

Conclusion  Inflation continues posing a threat  Inflation has been caused by rapid growth  Fall in oil prices and higher interest rates will lead to reduction in inflation  Challenges for Indian Economy in 2011 Getting inflation under control Spreading the growth benefits more equitably. Completing investment projects that are essential for the long term development of economy. Dealing with global financial uncertainty that will make the capital flows and exports more difficult.