Inflation accelerates to 7.41%
#GS-03 Inflation
For Prelims:
About Inflation:
- Inflation is the general rise in the price level of goods and services over a period of time within a particular economy which results in reducing the purchasing power of the customer.
- In India, Inflation is measured by the Ministry of Statistics and Programme Implementation (MoSPI).
Types of Inflation:
Demand-Pull Inflation:
- Demand-Pull Inflation happens when inflation is caused due to an increase in aggregate demand in the economy.
What causes demand pull inflation?
- A growing economy or increase in the supply of money – When consumers feel confident, they spend more and take on more debt. This leads to a steady increase in demand, which means higher prices.
- Asset inflation or Increase in Forex reserves– A sudden rise in exports forces a depreciation of the currencies involved.
- Government spending or Deficit financing by the government – When the government spends more freely, prices go up.
- Due to fiscal stimulus.
- Increased borrowing.
- Depreciation of rupee.
- Low unemployment rate.
Cost-Push Inflation:
- Cost-Push Inflation happens when inflation is caused due to an increase in cost of production.
What causes cost push inflation?
- Increase in price of inputs
- Hoarding and Speculation of commodities
- Defective Supply chain
- Increase in indirect taxes
- Depreciation of Currency
- Crude oil price fluctuation
- Defective food supply chain
- Low growth of Agricultural sector
- Food Inflation
- Interest rates increased by RBI
How inflation is measured:
In India, inflation is primarily measured by two main indices;
- WPI (Wholesale Price Index) and CPI (Consumer Price Index), which measure wholesale and retail-level price changes, respectively.
- The CPI calculates the difference in the price of commodities and services such as food, medical care, education, electronics etc, which Indian consumers buy for use.
- On the other hand, the goods or services sold by businesses to smaller businesses for selling further is captured by the WPI.
