Causes and Stages of Inflation (in Hindi)

Lesson 2 of 5 • 42 upvotes • 10:44mins

Vikas Kumar Singh Tomar

Inflation is the increase in general level of prices of goods and services, hence reducing the purchasing power. Causes: Increase in demand: When the demand of goods or services increases its price also increases. This type of inflation is called demand pull inflation . This can be caused due to the following: Population pressure: This will lead to a situation when too much money will be chasing very few goods. Reduction in supply: supply unable to meet demand and this increase the price of goods Natural calamities. Deficit financing or increase in money supply due printing of currencies or loans breeds inflation Increase in government expenditure: more government spending will lead to more money in hands of public hence greater purchasing power. Black money Increases in wages/salary will increase the disposable income hence demand increase and so does price. Cost push inflation: increase in cost of goods which can be dur to scarcity or other reasons pushes inflation. Some of the reasons are Increase in wages: this leads to more cost of production hence more prices. This can also cause demand pull inflation Increase in taxes: tax increases means more selling price Infrastructural bottlenecks: power supply,land , transportation costs or other factors Output and supply fluctuations: in India agriculture is an example as it depends on season. Increase in administered price Increase in import prices, pushes up domestic prices. Terms Related to Inflation The important terms related to inflation are as follows :- Deflation : Deflation is a condition of falling prices. It is just the opposite of inflation. In deflation, the value of money goes up and prices fall down. Deflation brings a depression phase of business in the economy. Disinflation : Disinflation refers to lowering of prices through anti-inflationary measures without causing unemployment and reduction in output. Reflation : Reflation is a situation of rising prices intentionally adopted to ease the depression phase of the economy. In reflation, along with rising prices, the employment, output and income also increase until the economy reaches the stage of full employment. Stagflation : Paul Samuelson describes Stagflation as the paradox of rising prices with increasing rate of unemployment. Stagnation : Stagnation in the rate of economic growth which may be a slow or no economic growth at all. Statflation : The term 'Statflation' was coined by Dr. P.R. Brahmananda to describe the inflationary situation of India. According to Brahmananda, Rising prices in the middle of a recession is known as Statflation.