Inflation

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INFLATION IN INDIAGROUP:Pal , Parth , Pranali , PRARTHANA , PREM , PRIYANSH , RACHANAINTRODUCTION:A general increase in prices and fall in the purchasing value of money.

Too many rupees chasing too few goods and services

CHARACTERISTICS:Excess demand over supplyA result of interaction of economic forcesObserved over a long period of timeNon cyclic movement of priceInverse relationship with value of moneyNEVER ENDING?

TYPES OF INFLATION:Demand pull inflationTotal demand for goods and services surpass the available supplyLeads to increase in prices of commodities in the market

Cost Push inflationIncreased price of factor of productionLeads to overall increase in production price, hence supply

Hyper inflation Abnormal increase in general price levels

Stagflation Combination of money and unemploymentDeflation A fall in general price level or Negative Inflation

INFLATION THEORIES:The costpush theory (A.W. Phillips, 1960)The basis of cost push theory of inflation is that organized groups, both business and labor, establish higher prices for their products or services than would prevail in perfectly competitive markets

The structural theoryThe rate of wage inflation as a whole is seen as proportional to the rate of structural change in the economy.

The Keynesian theory (J.M. Keynes)Consumers tend to spend a fixed proportion of any increases they receive in their incomes.

The quantity theory (David Hume, 18th century, Milton Friedman )Basic contentions are that short-period changes of themoney supplyare, in fact, followed by changes in income and that the velocity of circulation, though it fluctuates to some extent with the money supply, tends to be stable, over long periods.

CAUSES OF INFLATION:Money Supply GrowthHigh government expenditureHigh world oil pricesHigher the growth of population leads to higher private consumption of goods and services.Nominal effective exchange rate

INFLATION IN INDIA:In addition to above given factors, causes of inflation specifically for the Indian subcontinent are:Monsoon cycleGovernment subsidies on various resourcesFiscal deficitTension with neighboring countries and warsHoarding of goodsRising farm wages

IMPACTS OF INFLATION:The impacts of inflation in an economy can be classified as:Effects on production (changes in economics routine)Effects on income distribution (re-distribution of income and wealth)Effects on consumption and welfareAffects the Economic deficit of government accountRate of import/export changeRating and stability of economy changes

INFLATION IN INDIA IN THE PAST FEW DECADES:

After-affects of Indo-China war of 1962Policy review for resource allocation to India by World Bank and EnglandImplementation of 5 year planDevaluation of Rupee

Sudden increase in crude oil prices during 1973-74 period (due to middle eastern war situation, Yom Kippur War)After-affects of 1971 Indo-Pak war

Measures:Government took measures for infrastructure improvement in 5 year plan such as mining power and agriculture sector.Attaining self-reliance in food and energy became a top priority.

India economy was in turmoil due to external debt crisesPolitical situation at Centre was ambiguous.After economic reforms of 1991, government initiated Liberalization, Privatization and Globalization.Float exchange rate implemented

INFLATION IN INDIA (2005 2015)2005 - 2007Causes:

Rising income and the consequent changing preferencein terms of food itemsHigher value and more nutritious food items preferredVery weak rainsRising populationLimited supply of the demanded shifted items

Impacts:

Competing uses of cultivable landLow agricultural productivityDisguised unemployment increased

2008 - 2011Causes:

Impact of the US Economy, Global financial crisesIncrease in crude oil priceFragmented value chains for food supply, that allow middlemen to grab large margins

Impacts:

Exports became cheaper because the value of dollar decreasedService sector (most contributing to the GDP) ended up gaining less profits Farmers were not paid the deserted pricesPeople stopped consuming those commodities, leading to huge wastage of the stockFood cost raised everywhere, many couldnt afford the most consumed veg like onion

2012 - 2014Causes:

Rising incomes especially rural farm wages and increase in real consumption Clear structural shift in food consumption towards protein-based food itemsMahatma Gandhi National Rural Employment Guarantee Scheme (MGNREGA) increased the bargaining power of the work force

Impacts:

Temporary employment for the poorIncreased government deficit ( the new assigned employment wasnt targeted to any pre planned infrastructure )Hoarding was still an issue

2015 (CHANGE OF GOVERNMENT):State governments were asked to allow farmers to bypass mandis and sell fruits and vegetables in the open market. It has added onions and potatoes to the Essential Commodities Act to check hoarding. Plans to break up the Food Corporation of India, the government company, to pave the way for the private sector to enter the food-grain business.

HDI (HUMAN DEVELOPMENT INDEX):2005200820102011201220130.5270.5540.5700.5810.5830.586FORECAST:Inflation rate could be maintained for upcoming few years.According to the CII and McKinsey report, Indias per-capita gross domestic product (GDP) would increase by 320 per cent during 2012-2030. This increase in income would lead to 4 per cent increase per annum in overall food consumption from`11 trillion in 2010 to`22.5 trillion. In line with this, per-capita consumption is expected to post an annual 3 per cent increase from`9,360 to`15,390 during the period ().

REFERENCES:https://www.boundless.com/economics/textbooks/boundless-economics-textbook/measuring-output-and-income-19/cost-of-living-95/introduction-to-inflation-359-12456/https://www.rbi.org.in/scripts/PublicationsView.aspx?id=16055http://articles.economictimes.indiatimes.com/2014-08-19/news/52983505_1_food-inflation-food-prices-ashok-gulatihttp://www.mb.com.ph/editorial-agriculture-remains-our-greatest-hope/https://www.rbi.org.in/scripts/PublicationsView.aspx?id=16055 http://nicholsoncartoons.com.au/global-financial-crisis-where-to-now-600.htmlhttp://www.ias.ac.in/jess/jul2014/1129.pdf)CII and McKinsey, April 2013https://www.rbi.org.in/scripts/PublicationsView.aspx?id=16055

REFERENCES:http://www.gktoday.in/fifth-five-year-plan_22/http://www.inflation.eu/inflation-rates/india/historic-inflation/cpi-inflation-india.aspxhttp://en.wikipedia.org/wiki/Inflationhttp://www.britannica.com/EBchecked/topic/287700/inflation/3511/The-Keynesian-theoryhttp://pixshark.com/effect-of-inflation-on-common-people.htm

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