Inflation

Only available on StudyMode
  • Download(s) : 168
  • Published : April 4, 2013
Open Document
Text Preview
Latest news
Inflation remains a serious concern in India with the Consumer Price Index (CPI)-based inflation rising for the fifth consecutive month in February. At 10.9% from a year ago, consumer price inflation in India is the second highest among major economies—we still have some way to go before we can challenge Venezuela. Prices in the food, beverages and tobacco segment went up 13.4% from a year ago, a 33-month high. Vegetable prices have shot up 21% year-on-year. Core CPI inflation (ex-food and fuel) is at 8.4% from a year ago, slightly higher than the 8.2% in January. The continuous rise in food prices has led to CPI inflation, with its higher weight for food, showing a trend that diverges from wholesale price inflation, which eased to a three-year low of 6.6% in January. Conclusion

“Inflation is like fever… monetary policy will help in cooling down temperature in the short-term. If inflation is structural, it is like a chronic disease, which can be tackled only through a careful balance of monetary policy and variety of fiscal and other policy measures,”

FINANCIALYEARCOST INFLATION INDEX
2012-13852
2011-12785
2010-2011711
2009-2010632
2008-2009582
2007-2008551
2006-2007519
2005-2006497
2004-2005480
2003-2004463
2002-2003447
2001-2002426
2000-2001406
1999-2000389

1998-1999351
1997-1998331
1996-1997305
1995-1996281
1994-1995259
1993-1994244
1992-1993223
1991-1992199
1990-1991182

Summary
Inflation is the rapidly rising prices of goods and services caused to the increase in the supply money. Inflation arises when the demand for goods and services in an economy exceeds the supply of same. Inflation is a determinant in functioning of any economy. India is a country with a mixed economy model that comprises both capitalism and socialism hence the challenges faced are vital for its growth model. The recent rise in inflation has been found to consist of several political and economic crisis under the prime ministry of Dr Manmohan Singh. Contesting on the challenges faced, several economists have questioned the method of measuring inflation to be faulty. The present day process being used in India has been The Wholesale Price Index while several other developed countries adopt the Consumer price index to calculate inflation.

Body
Measurement Challenge
There are two basic system of measuring inflation present today. While India adopts the prior method which is considered to be lesser advanced. The demographics and structures of India don't permit it to adopt the second basis system of measuring inflation. [edit]Consumer Price Index

Though Consumer price index is a more advanced instrument for the measurement of inflation. There occurs several problems for India to shift from the current Wholesale Price Index. TheConsumer Price Index is not viable to be used in India because there is too much of a lag in reporting the Consumer Price Index numbers. Another debate points that contradicts the application ofConsumer Price Index is the fact that it is calculated on a monthly basis while the Wholesale Price Index is calculated on a weekly basis. A system which India adopts at present. However when the index for consumers are to be recorded than the wholesalers this system should be adopted. [edit]

Body contents
Issues
The challenges faced by a developing economy are many, especially when in context of the Monetary Policy with the Central Bank, the inflation and price stability phenomenon. There has been a universal argument these days when monetary policy is determined to be a key element in depicting and controlling inflation. The Central Bank works on the objective to control and have a stable price for commodities. A good environment of price stability happens to create saving mobilization and a sustained economic growth. The former Governor of RBI C. Rangarajan points out that there is a long-term tradeoff between output and inflation. He adds on that...
tracking img