Measures To Control Inflation Economics Essay

But here comes the supply which restricts. Because we have scarcity of resources to meet the demand of consumer and therefore unable to meet the demand.

This results into inflation.

Inflation is good upto a certain level, beyond a certain point it causes severe affects.

The inflation in India is due to the unemployment of men and material with rise in price. A rise in price does not lead to rise in production up till a certain stage though the country may not have attained the stage of full employment.

India has an inflation rate of 9.46% as per CPI, which is more than it is required.

Some of the countries face much more inflation. Greece crises were also affected by this.

During inflation cost of goods and services increases.

CAUSES OF INFLATION

1 Demand pulls inflation

2 Excessive growths in money supply

3 Cost push inflation

4 Structural inflation

TYPES OF INFLATION

If the inflation is more than 10%, it is known as hyperinflation.

When the inflation occurs despite slow economic growth, it is known as stagflation

When inflation affects different parts of the economy, it is known as asset inflation.

When the inflation is between 3%-5% it is known as running inflation.

When the inflation is less than 3% it is known as creeping inflation

When the inflation is till 9% it is known as walking inflation.

MEASURES TO CONTROL INFLATION

There are mainly three ways to control inflation. Those are as follows:

1. MONETARY MEASURES

-regulation of customer credit

-variable reserve requirement

-cooperation of central bank and commercial bank

2. FISCAL MEASURES

– reducing public expenditure

-proper utilization of taxes

-public borrowing and debt

3. OTHER MEASURES

-price control and rationing

-wage policy

-output adjustment

WPI DRIVEN INFLATION RATE FROM 1991-2012

YEAR

INFLATION RATE

 

 

1991-92

13.74%

1992-93

10.76%

1993-94

8.35%

1994-95

12.60%

1995-96

7.99%

1996-97

4.61%

1997-98

4.40%

1998-99

5.95%

1999-2000

3.27%

2000-2001

7.16%

2001- 2002

3.60%

2002-2003

3.41%

2003-2004

5.46%

2004-2005

6.48%

2005-2006

4.38%

2006-2007

5.42%

2007-2008

4.75%

2008-2009

12.40%

2009-2010

10.20%

2010-2011

9.25%

2011-2012

9.46%

Sources: www.investopedia.com www.slideshare.net

We can see from the given graph that during the year 1992-93 there was decrease in inflation rate from 13.74% to 10.76%. Preferred inflation is considered as 6%. The rate of inflation decreases in the year 1999-2000 to 3.27%. The growth of economy at that time was good. In the year 2009-10 the rate of inflation was 10.20% which was again at higher rate. At present our rate of inflation is 9.46% which is not considered as suitable. Inflation occurs due to full employment in the economy. Inflation is considered good sign and also bad sign. Recently, the RBI has given 6% as the most preferred inflation rate.

GOLD PRICE

In 1991 when the rate of inflation was 12.1%, the price of gold in India was Rs 4297.63. Inflation was at its peak in 1992. In 1996 the price of gold was Rs 5070 which was higher than compare to past six years.

In 2008 the price of gold reached in more than 10,000. At that time inflation was 4.75%. Graph shows an increasing trend from 1991-1996, and then from 1996-97 it had declined. Then again from 1997-2012 it shows an increasing trend. This shows not a single time the price has been decreased. Gold are frequently imported so there is always change in price due to excise duty and import duty.

There is a heavy demand for gold in India because people keep it as a security for future. Gold can be easily converted into cash.

YEAR

INFLATION

PRICE OF GOLD(IN RUPEES)

1991

12.1%

4297.63

1992

13.74%

4103.66

1993

10.76%

4531.87

1994

8.35%

4667.24

1995

12.60%

4957.6

1996

7.99%

5070.71

1997

4.61%

4347.07

1998

4.40%

4268

1999

5.95%

4393.56

2000

3.27%

4473.6

2001

7.16%

4579.12

2002

3.60%

5332.36

2003

3.41%

5718.95

2004

5.46%

6145.38

2005

6.48%

6900.56

2006

4.38%

9240.32

2007

5.42%

9995.62

2008

4.75%

12889.74

2009

12.40%

14700

2010

10.20%

20900

2011

9.25%

23450

2012

9.46%

30300

Sources:www.theindiaeconomy.org

CRUDE OIL

YEAR

INFLATION

CRUDE OIL (IN DOLLAR)

1991

12.1%

$20.19

1992

13.74%

$19.25

1993

10.76%

$16.74

1994

8.35%

$15.66

1995

12.60%

$16.75

1996

7.99%

$20.46

1997

4.61%

$18.97

1998

4.40%

$19.25

1999

5.95%

$16.55

2000

3.27%

$27.40

2001

7.16%

$23.00

2002

3.60%

$22.81

2003

3.41%

$27.69

2004

5.46%

$37.41

2005

6.48%

$50.04

2006

4.38%

$58.30

2007

5.42%

$64.20

2008

4.75%

$91.48

2009

12.40%

$53.56

2010

10.20%

$71.21

2011

9.25%

$87.48

2012

9.46%

$112.20

Source:www.indianbiznews.com

The graph above shows the trend of crude oil prices from 1991-2012. There is a decreasing trend from 1991-1994. They are the amount in dollar. India import crude oil. From 1995 to 1996 there is again fluctuation in prices.

In 2012 the price was maximum and we import it in huge amount. The price of crude oil which we pay is continuously changing because we import it and huge amount is vested on import duty and excise duty. The price of crude oil rises with inflation. As the dollar rate rises India has to pay more and more.

PRICE OF DOLLAR

Price of dollar in terms of rupees is given above. In 1991 1$=Rs 18.11. In 1997 value of one dollar was Rs= 39.15. So we can say that during exports of goods the in 1997 we will be able to fetch more amount of money. The value of dollar is ever increasing since. There was a fall as compared to INR in 2007 i.e., Rs 39.33. At that time the values of money was declined. India wanted to import goods when the currency is less. In a sense that the goods are bought at reasonable prices.

There is a continuous increase in the price of dollar with respect to Indian rupee. Because US has trade relations with almost all the countries. They have huge amount of exports. India contributes less than 1% in trade exchange. This is the main reason why India is not much affected by the inflation in other European countries.

YEAR

INFLATION

PRICE OF DOLLAR (IN RUPEES)

1991

12.1%

18.11

1992

13.74%

25.79

1993

10.76%

28.95

1994

8.35%

31.44

1995

12.60%

34.92

1996

7.99%

35.83

1997

4.61%

39.15

1998

4.40%

42.58

1999

5.95%

43.45

2000

3.27%

46.88

2001

7.16%

47.93

2002

3.60%

48.23

2003

3.41%

45.66

2004

5.46%

44

2005

6.48%

46.11

2006

4.38%

44.49

2007

5.42%

39.33

2008

4.75%

49.82

2009

12.40%

46.29

2010

10.20%

45.09

2011

9.25%

51.1

2012

9.46%

54.47

Sources: www.economywatch.com

www.slideshare.net

CONCLUSION

Inflation at high rate is not good. It affects the society at large scale.

If it is not controlled it has severe effects.

There are various measures to control inflation.

Inflation also affects the price of gold, dollar and crude oil.

During inflation the purchasing power of economy decreases.

Government has to take actions for controlling it.