Inflation accelerates to 7.41%

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.