Food Price Inflation in India

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  • Topic: Inflation, Consumer price index, 2007–2008 world food price crisis
  • Pages : 14 (4904 words )
  • Download(s) : 352
  • Published : November 24, 2010
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TABLE OF CONTENT

1. QUESTIONS…………………………………………………………………………………... 2. WHAT IS INFLATION………………………………………………………………………… 3. INFLATION IN INDIA………………………………………………………………………… 4. CAUSES OF INFLATION……………………………………………………………………...

4.1. Demand Pull………………………………………………………………………….. 4.2. Cost Push……………………………………………………………………………... 4.3 Artificial Creation
4.4. Deficit of Government
5. EFFECT OF INFLATION
5.1 Negative effects
5.2 Positive effects
6. TOOLS TO MEASURE INFLATION………………………………………………………….
6.1 National Income Deflator
6.2. Whole sale Price Index (WPI)………………………………………………………...
6.3. Consumer Price Index (CPI)…………………………………………………………..
7. FOOD PRICE INFLATION…………………………………………………………………….
7.1. what is food price inflation
8. GLOBAL SCENARIO
9. INDIAN PERSPECTIVE…………………………………………. 10. CAUSES OF INFLATION
11. MEASURES TO CONTROL INFLATION
12. CONCLUSION
13. ANSWERS TO THE QUESTIONS
14. BIBLIOGRAPHY

QUESTIONS
1)WH
2)D

INFLATION
Inflation is an economic condition where general level of prices for goods and services is rising and subsequently purchasing power is falling. As inflation rises every rupee will buy a smaller percentage of a good.

CAUSES OF INFLATION

Cost push theory: Inflation occurs when the cost of producing rises and the increase is passing on to consumer. The cost of production can rise because of a) Rising labour cost or when the production firm is a monopoly or oligopoly and raises prices, cost of imported raw material rises due to exchange rate changes b) External factor: natural calamities or an increase in the economic power of a certain country c) Increase in indirect taxes can also lead to increased production costs.

Demand pull theory: it attributes a rise in prices to increase to an increase in demand in excess of the supplies available. There can be an increase in demand due to: a) Increase in quantity of money in circulation relative to the ability of the economy. b) Declining interest rates cut in tax rates or increased consumer confidence increases the money supply in the economy.

Artificial creation: inflation can be artificially created through a circular increase in wage earners demands and then the subsequent increase in producer costs which will drive up the prices of their goods and services. This will then translate back into higher prices for wage earners or consumers. As demand increases from each side, inflation continues to rise.

Deficit of federal government: if money supply is increased to keep the interest rates down, they federal deficit contributes to inflation. If the debt is not monetized, some borrowers will be crowded out if the interest rates rise. This results in an impact on output and employment than on the price levels.

EFFECTS OF INFLATION

The worth of the money will reduce as time and inflation goes on. •Increase in prices of goods and services – the most visible effect •Decrease in real income
It encourages oarding – as people anticipate a rise in prices •Alters the distribution of income.
It can lead to a wage spiral – people will demand higher wages to cope with increasing prices and increased wages will push the prices further up •Lowers the domestic savings rate since people prefer to spend money rather than watch it diminish in value •When inflation becomes evry acute, it may lead to hyper inflation which is disastrous for any economy.

Apart from these, inflation has some positive effects too. These are :-

Relief from debt – if you had taken a loan at a fixed rate of interest, despite inflation, you will continue to pay the same interest to your creditor which actually implies a fall in the real interest that you are paying, though the nominal rate may be the same.

Increase in investments – when people realise that the value of money is decreasing, they try to invest it in an asset which would yield higher income, such as...
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