Inflation
- August 20, 2021
- Posted by: OptimizeIAS Team
- Category: DPN Topics
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Inflation
Subject – Economy
Context – inflation in India could be less transitory than in the US.
Concept –
- Inflation refers to the rise in the prices of most goods and services of daily or common use, such as food, clothing, housing, recreation, transport, consumer staples, etc.
- Inflation measures the average price change in a basket of commodities and services over time.
- Inflation is indicative of the decrease in the purchasing power of a unit of a country’s currency. This could ultimately lead to a deceleration in economic growth.
- However, a moderate level of inflation is required in the economy to ensure that production is promoted.
- In India, inflation is primarily measured by two main indices —WPI & CPI which measure wholesale and retail-level price changes, respectively.
- As per RBI, an inflation target of 4 per cent with a +/-2 per cent tolerance band, is appropriate for the next five years (2021-2025).
Structural Inflation –
- Structuralist Inflation is another form of Inflation mostly prevalent in the Developing and Low-Income Countries.
- The Structural school argues that inflation in the developing countries is mainly due to the weak structure of their economies.
- The Structuralist argues that the economies of developing countries like, Latin America and India are structurally underdeveloped as well as highly volatile due to the existence of weak institutions and imperfect working of markets.
- As a result of these imperfections, some sectors of the economy like agriculture will witness shortages of supply, whereas some sectors like consumer goods will witness excessive demand. Such economies face the problem of both shortages of supply, under-utilisation of resources as well as excessive demand in some sectors.