Inflation!!

 Inflation can be defined as "The rise of pricing of goods which can be translated as a decline in purchasing power over time. 

There are two main causes of Inflation:

Demand-pull Inflation: When the demand for goods increases as compared to the production and supply of goods then it is called demand-pull Inflation.

Cost-pull Inflation: When there is a limited production of goods then the cost of goods increases to meet the needs of people. 

Types of Inflation

There are mainly four types of Inflation

1. Creeping Inflation: In this inflation increases very slowly or in a creeping manner. 

2. Walking Inflaton: In this type, Inflation increases moderately in a single digit.

3. Galloping Inflation: When the Inflation is more than 10% then it is called galloping Inflation.

4. Hyper Inflation: When the Inflation is more than 50% it is very hard to control then it is called hyper-inflation. 

Some other types of Inflation: 

Stagflation- When Inflation and Unemployment are at higher levels in the economy then it is called stagflation.  

Bottleneck Inflation- When the supply of goods falls drastically but the demand for goods remains at the same level. 

Effects of Inflation on Economy:

1. On creditors and debitors: The lenders suffer and debitors are happy with the increase in Inflation.

2. On exporters: The demands for goods and services for exports steadily increase with the increase of Inflation. 

3. On supply: When the demand for goods increases because of limited production of goods and its supply. Inflation has a negative effect on the supply of goods. 

Advantages of Inflation: 

1. Inflation can boost growth.

2. A moderate level of Inflation can help to adjust wages. 

Disadvantages of Inflation:

1. Increased levels of inflation can bring the difference between the poor and the rich. 

2. Without inflation the economy becomes uncompetitive. 

How to overcome or control Inflation?

Everything is good when it is used to a limit. RBI is doing so much to control inflation, here are some points:

1. Repo Rates: It is the rate when Commercial banks take loans from RBI.

Reverse Repo Rate: It is the rate when RBI borrows loans from banks.

2.  Reserve Ratio: It is the reserve in the form of liquidity, cash, gold etc. banks have themselves to control inflation. 

3. Open Market solution: RBI sells its liquidity in the open market to control inflation. 

The current Inflation rate of India:

RBI tolerance band for inflation is 2 to 6%. The rural inflation rate is 5.93% which is 0.47% higher than urban inflation.