Inflation refers to the condition characterized by a large increase in the prices of goods and services. Inflation is measured for wholesale market and consumer market by using wholesale price Index (WPI) and Consumer Price Index (CPI) respectively.
Types of Inflation
- Cost Push Inflation: A type of inflation characterized by the rise in price of input materials, labour cost or interest rate. This means that there is an increase in cost of production without any increase in output.
Example: Rise in the price of petroleum products due to increase in the international price of Petroleum.
- Demand Pull Inflation: This type of inflation is caused when the demand of goods and services increased by their supply .This condition arises when people of the country earn more means they receive more income.
Example: Increase in the price of vegetable products due to shortage of supply.
- Structural: A type of persistent inflation caused by deficiencies in certain conditions in the economy such as problems in supply chain, backward agriculture sector etc.
Impact of Inflation on the economy
- It decreases the purchasing power of the consumer
- It also affects the saving pattern of people
- It decreases the competitiveness of domestic products in the international market
- Interest rate also becomes higher in the country with higher inflation