Inflation affects on the growth of the country Free Essay Example

ABSTRACT

Inflation is an issue which hides the growth of the country. It effects the living of the people of the country. The responsibility to protect the change in livingstandard of the people by inflation goes to economists, politicians and to government. The standard of living changes because of change in purchasingpower of people which effect their savings. In food items inflation is specially higher. Through this paper we analyse the inflation of our country that occured in past.

INTRODUCTION

Inflation is the increase of general price level of the goods and services which decrease the purchasing power of people living in the country .

When general price level increases for every unit of currency less goods and services can be purchased as compared before.

How is Inflation Measured

Inflation rate in India is given by ministry of commerce and industry. It is mainly measured by WPI .Till 2014 WPI was the main measure of inflation in India but after that RBI adopted CPI to measure for inflation in India .

WPI

WPI is price of wholesale goods and is released on every thursday to measure the change in prices of wholesale goods.

Problem with WPI?

Services sector plays major role in the Indian economy because consumers are spending money on services example health, education, etc.are not included when calculating WPI.

CPI

Consumer price index measure the changes in price level of services and consumer goods of the items that are purchased by households. Many countries including India use CPI as main measure to calculate inflation.

TYPES

Creeping Inflation

When price rise 3% a year or less.

Walking Inflation

When inflation is between 3-10% a year.

Galloping Inflation

When inflation rise to 10% or more.

Hyperinflation

When price rise more than 50%.

INDIA’S EXPERIENCE OF INFLATION

Inflation is a continous characteristic of the indian economy because of the big demand and low supply due to massive population, rising income and increase in blackmoney circulation .

FROM (1949-1961)

These years experienced moderate inflation rate. During this period the average rate of inflation was 2.69 percent. During 1954 to 1955 and 1955 to 1956 India’s inflation rate became negative and was -6.8 % and -5.2 % respectively and was followed by bye a high inflation rate of 14% in 1956 to 1957. This all was due to demand pressure that was due to second five year plan and after it inflation was Between 3% to 7%.

FROM (1962-1970)

This period’s average inflation rate was 6.9% with high inflation of 13.9% hand 11.6% in 1966 to1968 it was seen as impact of Pakistan war in 1965 . In 1968 to 1969 India experienced deflation of 1% due to great harvest .

FROM (1971-1991)

This period observed fluctuations in inflation rate. Average inflation was 10.1% ,early 1970s there was high inflation with rate touching to 25% for year 1974 to 1975 which is highest inflation rate till date for India. Coming years there were slight deflation, but inflation was again high at 17.1 % due to formation of OPEC which lead to increase in oil prices and due to poor agricultural output. Inflation came down to 7.5% in 1980 and increased to 10% in 1990.

FROM (1991-2000)

In 1991 rupee depreciated by 37% with respect to dollar and it added inflationary pressure in the economy on the other hand rising fuel prices also added to the rise in inflation as a result sharp rise in inflation was seen in 1992 to 1996 .From 1997 onwards there was a decrease in inflation rate and was 3.83% in 1999-2000.

FROM (2000-2009)

There was a decelerating trend in the inflation and it remained at about 3.5% till 2003 but deficient monsoon lead to increase in domestic food prices and increased the inflation in 2004 . Inflation rose in 2005-8 due to High International fuel prices and global slowdown .Average rate of inflation during this period was 3.6%.

FROM (2009-2013)

This period was marked by high inflation.During this period increase in vegetable prices due to unexpected rain and increase in global commodity prices resulted in high inflation. In 2011 inflation touched 9.7% due to depreciation of rupee and high global prices of commodities after 2013 inflation started declining steeply.

FROM (2013-2019)

Inflation started declining from 2013 onwards .It was highlighted by the economic survey that due to demonetisation inflation will be below 5% in 2016 to 2017. In 2016 inflation was low around 5% and has been showing a downward trend and stable between 3% to 5% for the years so far.Inflation is low in the present year due to lower prices specially on the food items .