Inflation

1. Definition of Inflation – Inflation is a rise in general price levels. It reduces purchasing power.
2. Types of Inflation – Demand-pull and cost-push inflation impact the economy differently. Both must be monitored.
3. WPI and CPI – Wholesale Price Index and Consumer Price Index measure inflation. CPI is more relevant for monetary policy.
4. Core Inflation – Excludes food and fuel prices. It indicates long-term inflation trends.
5. Causes of Demand-Pull Inflation – Caused by excess demand over supply. Often driven by rise in incomes and government spending.
6. Causes of Cost-Push Inflation – Results from increased production costs. Rising wages and raw material costs contribute.
7. Imported Inflation – Occurs when import prices rise. India faces this due to crude oil dependency.
8. Food Inflation – Driven by supply chain issues and monsoon failures. Impacts poor households the most.
9. Inflation Targeting – India targets 4% inflation (±2%). RBI adjusts monetary policy accordingly.
10. Monetary Policy Tools – Repo rate, CRR, and OMO help control inflation. RBI uses these to regulate liquidity.
11. Stagflation – High inflation with low growth is dangerous. It reduces employment and investment.
12. Deflation – Persistent fall in prices hurts producers. It slows economic activity.
13. Reflation – Policy measures to revive economic activity. Used during recession.
14. Hyperinflation – Extreme price rise destroys economic stability. India has never experienced it.
15. Effect on Savings – Inflation reduces real savings. Investors seek inflation-protected instruments.
16. Effect on Investment – Uncertainty discourages long-term investments. Stable inflation boosts confidence.
17. Effect on Exports – High inflation reduces competitiveness. Exporters face higher production costs.
18. Effect on Fixed-Income Groups – Salaried and pensioners suffer during inflation. Their income does not rise proportionately.
19. Inflation in Rural Areas – Often differs from urban inflation. Food price changes impact rural households.
20. Supply Chain Bottlenecks – Poor logistics increase prices. Efficient supply chains reduce inflation.
21. Energy Prices – Fuel price hikes increase transport costs. This leads to overall inflation.
22. Wage-Price Spiral – Higher wages lead to higher prices. It creates a cycle of inflation.
23. Agricultural Constraints – Low productivity causes seasonal inflation. Storage infrastructure must improve.
24. Fiscal Deficit Impact – Excessive government borrowing leads to inflation. It increases money supply.
25. Role of MSP – Minimum Support Price influences food inflation. Higher MSP may raise market prices.