Inflation

 

Inflation

Definition:
Inflation is a continuous and sustained increase in the general price level of goods and services in an economy over a period of time.

In simple words:
👉 When prices of almost everything increase, and the value of money falls, it is called inflation.

Effects of Inflation:

• Decrease in purchasing power
• Increase in cost of living
• Uncertainty in business decisions
• Fixed-income groups (salaried people) suffer the most

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2. Causes of Inflation

Inflation can be caused by several factors. Major causes include:

A. Demand-Pull Inflation

Occurs when aggregate demand is greater than aggregate supply.
Example:

• High government spending
• Increased consumer spending
• Easy credit and loans
• Increase in exports

Result:
👉 Too much money chasing too few goods.

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B. Cost-Push Inflation

Occurs when the cost of production increases, forcing producers to raise prices.
Causes include:

• Increase in wages
• Increase in raw material prices
• High cost of imported goods (like oil)
• Increase in electricity and fuel prices

Result:
👉 Production becomes expensive, so prices rise.For next class

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C. Imported Inflation

When the prices of imported goods increase, domestic prices also rise.
For example:

• Increase in international oil prices
• Depreciation of local currency (rupee), making imports costly

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D. Monetary Causes

• Excessive money supply
• Overprinting of currency
  Results in:
  👉 More money in circulation → higher demand → higher prices.

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E. Structural Issues

• Low agricultural productivity
• Poor supply chain
• Hoarding and black marketing
  These create artificial shortages and raise prices.