1. INFLATION
GOOD OR BAD!!

2. GROUP 5
ROHTI GUPTA
SOURABH KHUBCHANDANI
PIYUSH MALVIYA
SONY YADAV
MAHITA PENDYALA
VIKAS HEGDE

3. What cost Rs 100 in 1947 would cost Rs 5,920
What cost Rs 100 in 1947 would cost Rs 5, in 2011, a whopping rise of %

4. DEFINITIONS OF INFLATION
Inflation exists when money income is expanding more than in proportion to increase in earning activity
Inflation is a situation of “Too much money chasing too few goods”.
Inflation is a persistent and appreciable rise in the general level or average of prices.

5. IS INFLATION DESIRABLE OR UNDESIRABLE?
Inflation of 1- 2 % in developed nations(USA and UK) and 4-5% in developing nations is considered reliable.
To Drive the Economic Growth
To help grow Production and employment
To mobilization of resources(Saving and Investing)

6. UNDESIRABLE
It lead to unstable economy
Uncertainty about the purchasing power of money discourage investing and saving
Effects employment
Affects balance of trade where fixed exchange rates are imposed
Increased instability in currency exchange

7. NOT EVERY PRICE RISE IS INFLATION
Prices tend to rise due to changes in the composition of GDP.
Price rise due to qualitative change in products is not inflation.
Short-run rise in price due to sudden increase in demand and /or decrease in supply is not inflation
Price rise after depression or recession is not inflationary

8. DRIVERS OF INFLATION IN INDIA
Poor agricultural productivity and high dependence on monsoon.
Commodity price shock, mainly oil prices(1970’s).
Global business cycle and wars.

9. INFLATING TREND IN INDIA (1953-2011)

10. HISTORY OF INFLATION
In 1956, inflation stayed at a controlled level below 10%. No one could even set their own prices, since everything was government controlled.
In the 60s, we faced spiky inflation as wars hit our economy – the Chinese war in 62, and then the war with Pakistan in 65.
Prices of wholesale goods spiked and after India devalued it’s currency, things got slightly better, with inflation going below the zero level in 1969.

11. The 70s saw the great oil spike which led to extremes in inflation – the Emergency calmed things down
After ‘77, when the emergency was lifted, prices spiked again, and spiked to over 18% in
The rest of the 80s , the inflation came down as rules were eased, slowly, over supply and prices.
In the late 1980s and the early 1990s, supply shocks (food shortages and oil price rise due to US-Iraq war) were accompanied by demand pressures of high fiscal deficit in the 1980s and growing GDP in the 1990s.

12. The declining trend in inflation during to was the result of structural changes in the macroeconomic framework due to liberalisation.The improved supply response, improved financial and real economy, better monetary policy and emphasis on fiscal consolidation all helped bring down inflation.
Post , we observe a new phenomenon— demand conditions (especially non-government) influencing inflation along with the supply side. The Indian economy grew at an average rate of 8.24 per cent between and , fuelled by the growth rate in the services sector.

13. India experienced growth rates of above 9 per cent for three years from to This implied a rise in real per capita income, as inflation was below 6 per cent during those three years.
The 2008 oil price rise saw inflation temporarily go into double digits and interest rates went all the way to 9%. The Lehman bust then took inflation down to very low numbers in As the elections removed the left from power in 2009, the subsequent recovery then took inflation back up vigorously, and it has been above the 8% mark since.

14. CONCLUSION
Economists agree that Moderate rate of inflation is conclusive to economic growth.
But in longer term, there is no empirical relation between the inflation and economic .

15. Example.
Post World War II Period
Low rate of inflation and high rate of growth(West Germany).
High rate of inflation and high rate of growth(Japan).
High rate of inflation and low rate of growth(UK).
Low rate of inflation and low rate of growth(India).