Inflation and it's impacts
Table of Contents
I.
II.
III. INFLATION
IV.
V. MEANING
VI. Inflation is a sustained increase in the general price level of goods and services in an economy over a period of time. The price of only one commodity rising but the price of other commodities falling or the increase in the price of a commodity during a day is not termed as inflation.
VII. For example, let’s consider that there are only two commodities: bread, and paper money printed by the government. In a year when there is a huge demand for bread and bread is scarce, we would expect to see the price of bread rise, as there will be quite a few rupees chasing very few units of bread. In other case, if there's a high supply of bread, we would expect to see the price of bread fall, as bread sellers will need to reduce their prices in order to clear their inventory. These scenarios are inflation and deflation, respectively, though in the real world inflation and deflation are changes in the average price of all goods and services and not just one good and service.
VIII. The value of a currency is measured in terms of its purchasing power, which is represented by goods that money can buy. The value of currency does not remain constant when there is inflation. When there is an increase in price level, each unit of currency buys fewer goods and services. Thus, inflation results in reduction in purchasing power per unit of currency. For instance, if the inflation rate is 8%, then a Rs 1 pack of bread will cost Rs 1.08 in a year.
IX. MEASURES OF INFLATION
X. Inflation is usually measured based on certain indices. The inflation rate is the percentage rate of change of a price index over time. The inflation rate is widely measured by calculating the movement or change in a price index. The Consumer price index (CPI) and the Wholesale Prices Index (WPI) are the measures of inflation that are commonly used. WPI is broader than the CPI and contains a larger basket of goods and services.
XI.
I.
II.
III. INFLATION
IV.
V. MEANING
VI. Inflation is a sustained increase in the general price level of goods and services in an economy over a period of time. The price of only one commodity rising but the price of other commodities falling or the increase in the price of a commodity during a day is not termed as inflation.
VII. For example, let’s consider that there are only two commodities: bread, and paper money printed by the government. In a year when there is a huge demand for bread and bread is scarce, we would expect to see the price of bread rise, as there will be quite a few rupees chasing very few units of bread. In other case, if there's a high supply of bread, we would expect to see the price of bread fall, as bread sellers will need to reduce their prices in order to clear their inventory. These scenarios are inflation and deflation, respectively, though in the real world inflation and deflation are changes in the average price of all goods and services and not just one good and service.
VIII. The value of a currency is measured in terms of its purchasing power, which is represented by goods that money can buy. The value of currency does not remain constant when there is inflation. When there is an increase in price level, each unit of currency buys fewer goods and services. Thus, inflation results in reduction in purchasing power per unit of currency. For instance, if the inflation rate is 8%, then a Rs 1 pack of bread will cost Rs 1.08 in a year.
IX. MEASURES OF INFLATION
X. Inflation is usually measured based on certain indices. The inflation rate is the percentage rate of change of a price index over time. The inflation rate is widely measured by calculating the movement or change in a price index. The Consumer price index (CPI) and the Wholesale Prices Index (WPI) are the measures of inflation that are commonly used. WPI is broader than the CPI and contains a larger basket of goods and services.
XI.