Price and Inflation
A persistent and appreciable rise in the general level of prices of goods and services in an economy over a period of time.
It is a situation when ï¿½too many money chasing after too few goodsï¿½. An excess of aggregate demand over aggregate supply generates inflationary rise in prices. When money supply increases it creates more demand for goods but if supply of goods cannot be increased due to full employment or other reasons, demand-pull inflation is caused.
Cost-push inflation is caused by wage increase enforced by labour unions, profit increase by the entrepreneurs and input price rise due to structural or external reasons.
Printing of money to raise government revenue is like imposing a tax as it causes inflation and inflation eats up a part of the value of money. This is called inflation tax.
Wholesale Price Index (WPI)
WPI is a weighted average of price (whole sale) relatives of commodities, classified into three categories, namely primary, manufacturing and fuel and power.
Consumer Price Index (CPI)
CPI is a weighted average of price relatives of a basket of goods and services consumed by the people.
While ï¿½headline inflationï¿½ covers the entire set of goods and services included in the general index, ï¿½core inflationï¿½ otherwise known as ï¿½underlying inflationï¿½ ignores the volatile items in the general index.
Inflation targeting refers to the practice of the central bank to set an inflation target and t hen adjust its monetary policy accordingly.
The inflationary gap is the amount by which aggregate expenditure would exceed aggregate output at the full employment level of income.
Producer Price Index (PPI)
The Producer Price Index is a family of indices that measures the average change-over time in the selling prices received by domestic producers of goods and services. PPIs measure price change from the perspective of the seller.
Headline inflation covers the entire set of goods and services included in the general index.
Core inflation, otherwise known as ï¿½underlying inflationï¿½, ignores the volatile items in the general index.
Written by princy