Inflation
Inflation means a sub stained unchecked increase in the general price level over a period of time .for example oil price, house prices, basically ANYTHING you buy. Traditionally Philips Curve is used to measure inflation.
Philips Curve
It establishes relationship between inflation and unemployment . It states that if an economy wants low unemployment it must be prepared for high inflation. Developed by William Philips , this theory is regarded as empirically incorrect.
Deflation
I tis decrease in the general price level of goods and services. Deflation occurs when the inflation falls below 0% . In short , it is just the opposite of inflation. Example electronic goods .
Hyper Inflation / Galloping Inflation
It is a rapid raise in the general price level , leading to a rapid fall in the Value or Purchasing Power parity of money . It even leads to a situation when people start losing faith in the currency and policy makers may think in terms of using an alternative stable currency of even resorting to barter.
Stag Flation
In this case inflation exists side by side with recession and unemployment . It may due to inflation remaining unchecked for quite sometime so that it not only raises the input prices , but also adversely effects demand and consumption leading to a leading to a situation of recession.
Reflation- Disinflation
Reflation is a situation in which in which after a slow down and recession the economy starts picking up and as a result of the revival inflation rates also start picking up . Disinflation is the opposite of Reflation ; It is reduction in the general price level in the economy , but for a very short period of time . Disinflation tales place only when an economy is suffering from recession.
Recession – Depression
Recession is a situation in which there is negative growth rate of GDP for two successive quarters. While Depression is a situation in which recession would have lasted too long and unchecked , so that for all purposes it can be defined as an extreme form of recession in which demand would be falling every day. There would be total collapse of business optimism leading to a vicious circle. Technically , in depression the GDP growth falls more than % . e.g., Great Depression of 1929-32.
Core Inflation
It means inflation rate which does not take into account the impact of those factors which are beyond government’s controls. These are exogenic factors , like in India increase international prices of crude oil metals etc which are imported by India are consumed to a large extent.
Inflation Targeting
One of the major objective of Central Bank of a country is to ensure that there is certain rate if range of inflation which it will target and to this end it will direct its monetary policy to achieve this target and not allow inflation to go beyond . The Reserve Bank of India too has started with inflation target as inflation policy.
Cause of Inflation
- Demand Pull Factors due to which there is an overall increase in the demand for goods and services.
- Cause Push Factor due to which there is an increase in cost of production and or shortfall in supply.
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