Inflation and Its Types
NCERT Class 12 • Introductory Macroeconomics • Chapters on money and income determination | NCERT Class 11 • Indian Economic Development
Inflation and Its Types
Inflation is a sustained rise in the general price level over time, which means the same money buys fewer goods than before. A one time rise in the price of a single good is not inflation; the rise has to be general and continuing across the economy for it to count.
Causes and Types
- Demand pull inflation happens when total demand exceeds the available supply of goods, so prices are pulled up.
- Its causes include a rise in money supply, higher government spending, easy credit and rising incomes.
- Cost push inflation happens when the cost of production rises, so prices are pushed up.
- Its causes include costlier raw material, higher wages, higher fuel prices and higher indirect taxes.
- By speed, inflation is creeping when very slow, walking when moderate, running when fast, and hyperinflation when prices rise out of control.
- Deflation is a sustained fall in the general price level, which can be as harmful as inflation because it reduces output and employment.
- Stagflation is the difficult combination of high inflation with stagnant output and high unemployment.
Effects and Measurement
- Inflation hurts those with fixed money incomes such as pensioners, salaried workers and wage labour.
- It helps borrowers, since the real value of what they repay falls, and it can help producers holding stock.
- It hurts savers holding money, and it can push households from saving into buying assets.
- Prices are measured by an index number that compares the current price of a basket with its base year price.
- The wholesale price index tracks bulk trade prices; the consumer price index tracks retail prices paid by households.
- The consumer index matters more for the common person because it reflects the actual household basket.
- A moderate and predictable rate of inflation is generally considered healthy for growth.
- Very high inflation destroys confidence in money and pushes people towards gold and land.
| Type | Cause | Example Trigger |
|---|---|---|
| Demand pull | Demand exceeds supply | Excess money supply |
| Cost push | Cost of production rises | Costlier fuel or wages |
| Deflation | Demand falls persistently | Deep slowdown |
| Stagflation | Cost rise with stagnation | Supply shock in a weak economy |
Inflation — a sustained rise in the general price level, which reduces the purchasing power of money.
Exam me kaise aata hai
- Inflation caused by excess demand is — demand pull inflation
- Inflation caused by costlier inputs is — cost push inflation
- High inflation with stagnant output is — stagflation
- Retail prices paid by households are tracked by — the consumer price index
UPSC/State PSC ke liye
- Inflation acts like a hidden tax on money holders and a hidden subsidy to borrowers, which is why it redistributes wealth without any law being passed.
- Supply side inflation cannot be cured by tightening money alone, because the problem lies in production cost, not in excess demand.
Yahan confuse hote hain
✗ Any price rise is inflation | Inflation is a general and sustained rise, not a one time rise in one good | ✓
✗ Inflation helps everyone equally | It hurts fixed income earners and helps borrowers | ✓
✗ Deflation is always good | Deflation can cut output and employment | ✓
Ek nazar me
- Inflation is a general and sustained rise in prices.
- Demand pull comes from excess demand; cost push from higher costs.
- Deflation and stagflation are the opposite and the mixed problems.
- Measured by wholesale and consumer price indices.