Inflation
Economics · मुद्रास्फीति
📋Quick Overview
Inflation is the sustained rise in the general price level of goods and services over time, leading to a fall in the purchasing power of money. It is measured using price indices — WPI (Wholesale Price Index) and CPI (Consumer Price Index). RBI targets CPI inflation at 4% (+/- 2%), i.e., a band of 2-6%. Inflation can be demand-pull (excess demand) or cost-push (rising costs). Various types include deflation, stagflation, hyperinflation, disinflation, and reflation.
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RBI uses CPI (not WPI) for inflation targeting. Target: 4% (+/- 2%) = 2% to 6% range.
📖Demand-Pull vs Cost-Push Inflation
📖Types of Inflation & Related Terms
| Term | Definition | Key Point |
|---|---|---|
| Deflation | Sustained fall in general price level (negative inflation) | Opposite of inflation. Prices fall, demand falls, economy slows. Japan experienced this in 1990s |
| Disinflation | Rate of inflation is DECREASING but still positive | Prices still rising but at a slower rate. Example: inflation drops from 8% to 4% |
| Stagflation | High inflation + High unemployment + Stagnant growth (all three together) | Worst economic situation. Stagnation + Inflation = Stagflation |
| Hyperinflation | Extremely rapid and out-of-control inflation (100%+ per month) | Money becomes nearly worthless. Example: Zimbabwe (2008), Germany (1923), Venezuela |
| Reflation | Deliberate policy to stimulate economy after deflation | Government increases money supply or spending to boost demand and prices |
| Creeping Inflation | Mild inflation (1-3% per year) | Considered healthy for economic growth |
| Galloping Inflation | Rapid inflation (10-100% per year) | Serious concern, erodes savings rapidly |
📖WPI vs CPI
📝Phillips Curve
- •Phillips Curve shows INVERSE relationship between inflation and unemployment
- •When inflation is HIGH → unemployment is LOW (and vice versa)
- •Named after A.W. Phillips (1958) who studied UK data (1861-1957)
- •Stagflation CONTRADICTS Phillips Curve (both high inflation AND high unemployment)