Inflation

Inflation

Subject : economy

Section: Inflation

Context:

Inflation has become a problem in India once again, well before it emerged globally and in the advanced countries as a major concern. In India, inflation rates of 6 per cent and above were evident even during the pandemic collapse, when much of the rest of the world suffered deflation

This was largely due to cost push pressures resulting from

• The Central government’s continuous increases in fuel taxes, which effectively increased the costs of producing and transporting goods and services.
• Ukraine war has pushed global prices of fuel and other commodities (including food crops like wheat) northwards.
• Supply chain issues are driving inflation up in most parts of the world.
• India is no exception to this, with the past few months showing dramatic rises in the Wholesale Price Index (WPI) which has been showing double-digit inflation for several months now.

What is Deflation?

Disinflation is a decline in the rate of inflation. The inflation rate is declining over time, but it remains positive. Disinflation should not be confused with deflation, which is fall in price level. Disinflation accompanied by higher economic growth, is a favourable position for economy.

Deflation occurs when asset and consumer prices fall over time. t is the opposite of the often-encountered inflation.

A reduction in money supply or credit availability is the reason for deflation in most cases. Reduced investment spending by government or individuals may also lead to this situation.

Impact:

Deflation leads to a problem of increased unemployment due to slack in demand.

Is deflation similar to disinflation?
Deflation is different from disinflation as the latter implies decrease in the level of inflation whereas on the other hand deflation implies negative inflation.