Introduction
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One of the recent problems all the countries are facing is the rise in the rate of inflation.
In this blog, we will have a basic understanding of inflation and its effect and impact on the economy with the help of infographics.
What is Inflation?
Source: https://www.valueresearchonline.com/stories/50214/strange-ideas-about-inflation/
In economics, inflation is a general increase in the prices of goods and services in an economy.
When the general price level rises, each unit of currency buys fewer goods and services.
Source: https://www.slideshare.net/gauravhtandon1/inflation-81133661
Causes of Inflation
Some of the major causes of inflation are:
- Demand-pull inflation – Demand-pull inflation happens when the demand for certain goods and services is greater than the economy’s ability to meet those demands.
- Cost-push inflation.
- Increased money supply.
- Devaluation.
- Rising wages.
- Policies and regulations.
Source: https://www.investopedia.com/terms/i/inflation.asp
Source: https://mint.intuit.com/blog/planning/causes-of-inflation/
Source: https://www.tutor2u.net/economics/reference/causes-of-inflation
Source: https://www.iasgyan.in/blogs/inflation-all-you-need-to-know
Types of Inflation
Source: https://mobillegends.net/what-are-the-different-types-of-inflation-what-are-some-examples#images-5
Effects of inflation
Source: https://extraessay.com/?key_wpg=6e330aece0d36b6a1d8c2e2042792828&sub_id=29l2fr93bt4bq
What is hyperinflation?
Source: https://efinancemanagement.com/economics/hyperinflation
What is Stagflation?
Source: https://assignmentpoint.com/stagflation-in-economics
Measurements of Inflation
- Wholesale Price Index (WPI) – Wholesale Price Index represents the price of goods at a wholesale stage i.e., goods that are sold in bulk and traded between organizations instead of consumers.
WPI = (Current Price / Base Period Price) × 100
- Consumer Price Index (CPI) – The Consumer Price Index measures the overall change in consumer prices based on a representative basket of goods and services over time.
The CPI is the most widely used measure of inflation, closely followed by policymakers, financial markets, businesses, and consumers.
CPIt = Ct/C0 * 100
CPIt = consumer price index in the current period
Ct = cost of the market basket in the current period
C0 = cost of the market basket in the base period
- Producer Price Index – It is a measure of the average change in the selling prices over time received by domestic producers for their output.
It is calculated by dividing the current prices received by the sellers of a representative basket of goods by their prices in some base year multiplied by 100.
PPI = current price of basket/base price of a basket
- Commodity Price Indices – It is a fixed-weight index or (weighted) average of selected commodity prices, which may be based on spot or futures prices.
It is designed to be representative of the broad commodity asset class or a specific subset of commodities, such as energy or metals.
Commodity prices are primarily determined by the forces of supply and demand in the market. If the supply increases, the price of commodities decreases, and similarly if the demand increases then the price decreases.
- Core Price Index/Personal Consumption Expenditure – It measures the prices paid by consumers for goods and services excluding the changes in the movements in food and energy prices.
The “core” PCE price index is defined as personal consumption expenditures (PCE) prices excluding food and energy prices.
It is a key way to measure changes in purchasing trends and inflation.
- GDP deflator – It is a measure of general price inflation i.e., a measure of the level of prices of all new, domestically produced, final goods and services in an economy in a year.
GDP deflator = Nominal GDP/Real GDP * 100
Gross Domestic Product (GDP) is the total market value or monetary value of all the finished goods and services produced within the borders of a country during a specific period.
Nominal gross domestic product is GDP that is evaluated at the present market prices.
Real GDP is an inflation-adjusted calculation that analyses the rate of all commodities and services manufactured in a country for a fixed year.
Global Inflation Rate
Source: https://www.statista.com/chart/27480/projected-annual-inflation-by-country/
Source: https://in.pinterest.com/pin/countries-with-the-highest-inflation-rate–679551031284671993/
Inflation impact on the Indian Economy
How Government control the inflation rate?
Source: https://www.learnpick.in/prime/documents/ppts/details/3780/inflation
Conclusion
The continuous events of COVID-19, the Ukraine and Russia war crisis, the increase in the rate of unemployment, and disruptive supply chains globally have impacted the rate of inflation in all developed and developing countries.
The downfall of not only our neighboring country Sri Lanka but also many other developed countries due to high inflation is a caution to all countries at global level.
Recently, the G20 Finance Ministers and Central Bank Governors meeting was held in February 2022, with Indonesia presiding, covering several key topics.
This included discussions on building resilience in global supply chains to reduce the inflation pressure, addressing the impacts of the pandemic on youth, women, and informal/low-skilled workers, and also for Central Banks to act where necessary to ensure price stability (in line with their respective mandates) to curb rising inflation.
You can read the full article in G20-FMCBG-Communique-Jakarta-17-18-February-2022.pdf
I have done this blog on inflation with the help of infographics keeping in mid that it can be understood and explained better in pictures than words.
Hope you enjoyed reading it. See you s
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