Quick Links
Quick Links
UPSC Exams
Latest Update
UPSSSC Junior Assistant Admit Card 2025 Fastag Annual Pass 2025 UGC NET Exam Analysis 2025 UGC NET Question Paper 2025 AP LAWCET Result 2025 UGC NET City Slip 2025 UPSC DAF 1 2025 Rajasthan PTET Answer Key 2025 UPSC Prelims Result 2025 UPSC IFS Result 2025 8th Pay Commission Salary Hike News UPSC 2024 Prelims Answer Key UPSC 2026 Calendar UPSC Admit Card 2025 UPSC Prelims Result Date 2025 UPSC Prelims Answer Key 2025 UPSC Prelims 2025 Expected Cut Off UPSC Prelims Exam Analysis 2025 UPSC Final Result 2025 UPSC Topper Shakti Dubey UPSC Application Rejected List 2025 UPSC Application Date Re-Extended UPSC Interview Date 2024 UPSC Notification 2025 UPSC Admit Card 2025 for Prelims UPSC CSE Prelims 2025 Question Paper UPSC IFS Notification 2025 Indian Navy MR Result 2025 Indian Navy SSR Result 2025
Coaching
UPSC Current Affairs
Syllabus
UPSC Notes
Previous Year Papers
UPSC Mains Previous Year Question Papers Last 25 Years UPSC Prelims Question Papers Last 10 Years UPSC Question Papers UPSC CSE Prelims 2025 Question Paper UPSC Mains 2024 Model Answers UPSC 2024 Question Papers UPSC 2023 Question Papers UPSC 2022 Question Papers UPSC 2021 Question Papers UPSC 2020 Question Papers UPSC 2019 Question Papers UPSC 2018 Question Papers UPSC 2017 Question Papers UPSC 2016 Question Papers UPSC 2015 Question Papers UPSC 2014 Question Papers UPSC CSAT Question Papers UPSC IFS Previous Year Paper UPSC Assistant Labour Commissioner Previous Question Year Papers UPSC Combined Geo Scientist Previous Year Paper UPSC APFC Previous Year Question Papers UPSC CMS Previous Year Question Paper UPSC EPFO Previous Year Paper UPSC Air Safety Officer Previous Year Papers UPSC SO Steno Previous Year Paper UPSC IES ISS Previous Year Question Papers
Mock Tests
UPSC Editorial
Bilateral Ties
Albania India Relations India Algeria Relations Andorra India Relations India Angola Relations India Antigua Barbuda Relations India Argentina Relations Austria India Relations India Azerbaijan Relations Bahamas India Relations India Bahrain Relations Barbados India Relations India Belarus Relations Belgium India Relations Belize India Relations Benin India Relations Bolivia India Relations India Bosnia Herzegovina Relations India Botswana Relations Brazil India Relations Brunei India Relations Bulgaria India Relations Burundi India Relations Cabo Verde India Relations India Cambodia Relations India Cameroon Relations Canada India Relations India Cayman Islands Relations India Central African Republic Relations India Chad Relations Chile India Relations India Colombia Relations India Comoros Relations India Democratic Republic Of The Congo Relations India Republic Of The Congo Relations India Cook Islands Relations India Costa Rica Relations India Ivory Coast Relations India Croatia Relations India Cyprus Relations India Czech Republic Relations India Djibouti Relations India Dominica Relations India Dominican Republic Relations India Ecuador Relations India El Salvador Relations India Equatorial Guinea Relations India Eritrea Relations Estonia India Relations India Ethiopia Relations India Fiji Relations India Finland Relations India Gabon Relations India Gambia Relations India Georgia Relations Germany India Relations India Ghana Relations India Greece Relations India Grenada Relations India Guatemala Relations India Guinea Relations India Guinea Bissau Relations India Guyana Relations India Haiti Relations India Holy See Relations India Honduras Relations India Hong Kong Relations India Hungary Relations India Iceland Relations India Indonesia Relations India Iran Relations India Iraq Relations India Ireland Relations India Jamaica Relations India Kazakhstan Relations India Kenya Relations India Kingdom Of Eswatini Relations India Kiribati Relations India Kuwait Relations India Kyrgyzstan Relations India Laos Relations Latvia India Relations India Lebanon Relations India Lesotho Relations India Liberia Relations Libya India Relations Liechtenstein India Relations India Lithuania Relations India Luxembourg Relations India Macao Relations Madagascar India Relations India Malawi Relations India Mali Relations India Malta Relations India Marshall Islands Relations India Mauritania Relations India Micronesia Relations India Moldova Relations Monaco India Relations India Montenegro Relations India Montserrat Relations India Morocco Relations Mozambique India Relations India Namibia Relations India Nauru Relations Netherlands India Relations India Nicaragua Relations India Niger Relations India Nigeria Relations India Niue Relations India North Macedonia Relations Norway India Relations India Palau Relations India Panama Relations India Papua New Guinea Relations India Paraguay Relations Peru India Relations India Philippines Relations Qatar India Relations India Romania Relations Rwanda India Relations India Saint Kitts And Nevis Relations India Saint Lucia Relations India Saint Vincent And Grenadines Relations India Samoa Relations India Sao Tome And Principe Relations Saudi Arabia India Relations India Senegal Relations Serbia India Relations India Sierra Leone Relations India Singapore Relations India Slovak Republic Relations India Slovenia Relations India Solomon Islands Relations Somalia India Relations India South Sudan Relations India Spain Relations India Sudan Relations Suriname India Relations India Sweden Relations India Syria Relations India Tajikistan Relations Tanzania India Relations India Togo Relations India Tonga Islands Relations India Trinidad And Tobago Relations India Tunisia Relations India Turkmenistan Relations India Turks And Caicos Islands Relations India Tuvalu Relations India Uganda Relations India Ukraine Relations India Uae Relations India Uruguay Relations India Uzbekistan Relations India Vanuatu Relations India Venezuela Relations India British Virgin Islands Relations Yemen India Relations India Zambia Relations India Zimbabwe Relations
Books
Government Schemes
Production Linked Incentive Scheme Integrated Processing Development Scheme Rodtep Scheme Amended Technology Upgradation Fund Scheme Saathi Scheme Uday Scheme Hriday Scheme Samagra Shiksha Scheme India Nishta Scheme Stand Up India Scheme Sahakar Mitra Scheme Mdms Mid Day Meal Scheme Integrated Child Protection Scheme Vatsalya Scheme Operation Green Scheme Nai Roshni Scheme Nutrient Based Subsidy Scheme Kalia Scheme Ayushman Sahakar Scheme Nirvik Scheme Fame India Scheme Kusum Scheme Pm Svanidhi Scheme Pmvvy Scheme Pm Aasha Scheme Pradhan Mantri Mahila Shakti Kendra Scheme Pradhan Mantri Lpg Panjayat Scheme Mplads Scheme Svamitva Scheme Pat Scheme Udan Scheme Ek Bharat Shresth Bharat Scheme National Pension Scheme Ujala Scheme Operation Greens Scheme Gold Monetisation Scheme Family Planning Insurance Scheme Target Olympic Podium Scheme
Topics
NASA Space Missions
NASA Mercury-Redstone 3 (Freedom 7) Mission NASA Mercury-Redstone 4 (Liberty Bell 7) Mission NASA Mercury-Atlas 6 (Friendship 7) Mission NASA Mercury-Atlas 7 (Aurora 7) Mission NASA Mercury-Atlas 8 (Sigma 7) Mission NASA Mercury-Atlas 9 (Faith 7) Mission NASA Gemini 3 Mission NASA Gemini 4 Mission NASA Gemini 5 Mission NASA Gemini 7 Mission NASA Gemini 8 Mission NASA Gemini 9 Mission NASA Gemini 10 Mission NASA Gemini 11 Mission NASA Gemini 12 Mission NASA Apollo 1 (AS‑204) Mission NASA Apollo 7 Mission NASA Apollo 8 Mission NASA Apollo 9 Mission NASA Apollo 10 Mission NASA Apollo 11 Mission NASA Apollo 12 Mission NASA Apollo 13 Mission NASA Apollo 14 Mission NASA Apollo 15 Mission NASA Apollo 16 Mission NASA Apollo 17 Mission NASA Skylab Orbital Workshop Mission NASA Skylab 2 Mission NASA Skylab 3 Mission NASA Skylab 4 Mission NASA Apollo–Soyuz Test Project Mission NASA STS‑1 Columbia Mission NASA STS‑3 Columbia Mission NASA STS‑7 Challenger Mission NASA STS‑8 Challenger Mission NASA STS‑41B Challenger Mission NASA STS‑41G Discovery (1st female EVA) Mission NASA STS‑51L Challenger (accident) Mission NASA STS‑26 Discovery (Return‑to‑Flight) Mission NASA STS‑31 Discovery (Hubble Launch) Mission NASA STS‑49 Endeavour (first capture EVA) Mission NASA STS‑61 Endeavour (Hubble Servicing 1) Mission NASA STS‑73 Columbia (microgravity) Mission NASA STS‑95 Discovery (John Glenn returns) Mission NASA STS‑107 Columbia (accident) Mission NASA STS‑114 Discovery (RTF‑2) Mission NASA STS‑120 Discovery (Node 2) Mission NASA STS‑125 Atlantis (Final Hubble Service) Mission NASA STS‑132 Atlantis Mission NASA STS‑135 Atlantis (Final Shuttle flight) Mission NASA Artemis I (Orion/ SLS‑1) Mission NASA Artemis II (Planned) Mission NASA Artemis III (Planned lunar landing) Mission NASA Mariner 4 Mission NASA Mariner 6 Mission NASA Mariner 7 Mission NASA Mariner 9 Mission NASA Viking 1 Orbiter/Lander Mission NASA Viking 2 Orbiter/Lander Mission NASA Mars Pathfinder & Sojourner Mission NASA Mars Global Surveyor Mission NASA 2001 Mars Odyssey Mission NASA Mars Exploration Rover – Spirit Mission NASA Mars Exploration Rover – Opportunity Mission NASA Mars Reconnaissance Orbiter Mission NASA Phoenix Mars Lander Mission NASA InSight Mars Lander Mission NASA Mars 2020 (Perseverance & Ingenuity) Mission NASA Mars Sample Return – SRL (planned) Mission NASA Pioneer 10 Mission NASA Pioneer 11 Mission NASA Voyager 1 Mission NASA Voyager 2 Mission NASA Galileo Jupiter Orbiter/Probe Mission NASA Cassini–Huygens Mission NASA New Horizons (Pluto & KBO) Mission NASA Juno Mission NASA Europa Clipper (planned) Mission NASA Parker Solar Probe Mission NASA Solar Orbiter (ESA/NASA) Mission NASA Surveyor 1 Mission NASA Lunar Orbiter 1 Mission NASA Lunar Prospector Mission NASA LCROSS Mission NASA LADEE Mission NASA Lunar Reconnaissance Orbiter (LRO) Mission NASA CAPSTONE Mission NASA VIPER Rover (planned) Mission NASA NEAR Shoemaker Mission NASA Deep Space 1 Mission NASA Stardust Mission NASA Genesis Mission NASA Deep Impact Mission NASA Dawn (Vesta/Ceres) Mission NASA OSIRIS‑REx Mission NASA Lucy Mission NASA DART Mission NASA Landsat‑1 (ERTS‑1) Mission NASA Landsat‑5 Mission NASA Landsat‑9 Mission NASA Terra Mission NASA Aqua Mission NASA Aura Mission NASA Suomi NPP Mission NASA Sentinel‑6 Michael Freilich Mission NASA ICESat‑2 Mission NASA GRACE‑FO Mission NASA SMAP Mission NASA GPM Core Observatory Mission NASA CALIPSO Mission NASA CloudSat Mission NASA NISAR (NASA‑ISRO) Mission NASA Explorer 1 Mission NASA COBE Mission NASA Compton Gamma Ray Observatory Mission NASA Hubble Space Telescope Mission NASA Chandra X‑ray Observatory Mission NASA Spitzer Space Telescope Mission NASA WISE Mission NASA Kepler Mission NASA TESS Mission NASA Fermi Gamma‑ray Space Telescope Mission NASA NICER Mission NASA IXPE Mission NASA Roman Space Telescope (planned) Mission NASA NuSTAR Mission NASA GALEX Mission NASA Swift Mission NASA SOHO (ESA/NASA) Mission NASA Cluster II (ESA/NASA) Mission NASA TIMED Mission NASA STEREO‑A/B Mission NASA MMS Mission NASA IRIS Mission NASA Solar Dynamics Observatory Mission NASA X‑37B OTV‑1 (USAF/NASA liaison) Mission NASA X‑59 QueSST Mission NASA Mars Helicopter Ingenuity Mission NASA Valkyrie R5 Robot Mission NASA Low‑Boom Flight Demo Mission NASA CRS‑1 Dragon Mission NASA CRS‑1 Cygnus Mission NASA Crew Dragon Demo‑2 Mission NASA Starliner OFT‑2 Mission NASA STS-2 (Shuttle flight) Mission NASA STS-4 (Shuttle flight) Mission NASA STS-5 (Shuttle flight) Mission NASA STS-6 (Shuttle flight) Mission NASA STS-41C (Shuttle flight) Mission NASA STS-41D (Shuttle flight) Mission NASA STS-51A (Shuttle flight) Mission NASA STS-61C (Shuttle flight) Mission NASA STS-26 (Shuttle flight) Mission NASA STS-27 (Shuttle flight) Mission NASA STS-29 (Shuttle flight) Mission NASA STS-30 (Shuttle flight) Mission NASA STS-32 (Shuttle flight) Mission NASA STS-34 (Shuttle flight) Mission NASA STS-38 (Shuttle flight) Mission NASA STS-45 (Shuttle flight) Mission NASA STS-60 (Shuttle flight) Mission NASA STS-70 (Shuttle flight) Mission NASA STS-71 (Shuttle flight) Mission NASA STS-73 (Shuttle flight) Mission NASA STS-88 (Shuttle flight) Mission NASA STS-92 (Shuttle flight) Mission NASA STS-97 (Shuttle flight) Mission NASA STS-99 (Shuttle flight) Mission NASA STS-100 (Shuttle flight) Mission NASA STS-104 (Shuttle flight) Mission NASA STS-106 (Shuttle flight) Mission NASA STS-110 (Shuttle flight) Mission NASA STS-112 (Shuttle flight) Mission NASA STS-115 (Shuttle flight) Mission NASA STS-116 (Shuttle flight) Mission NASA STS-117 (Shuttle flight) Mission NASA STS-118 (Shuttle flight) Mission NASA STS-120 (Shuttle flight) Mission NASA STS-122 (Shuttle flight) Mission NASA STS-123 (Shuttle flight) Mission NASA STS-126 (Shuttle flight) Mission NASA STS-130 (Shuttle flight) Mission NASA Vanguard 1 Mission NASA Transit 1B Mission NASA Echo 1 Mission NASA Telstar 1 Mission NASA Syncom 3 Mission NASA ATS‑6 Mission NASA Skynet Mission NASA Nimbus‑1 Mission NASA Nimbus‑7 Mission NASA ERS-1 Mission NASA SeaSat Mission NASA QuikSCAT Mission NASA Jason‑1 Mission NASA Jason‑3 Mission NASA ICESat Mission NASA Earth Observing‑1 Mission NASA Orbiting Carbon Observatory‑2 Mission NASA CYGNSS Mission NASA PACE Mission NASA TRMM Mission NASA Terrestrial Planet Finder (cxl) Mission NASA Laser Interferometer Space Antenna (LISA) Mission NASA Explorer 33 Mission NASA Voyager Interstellar Mission Mission NASA Helios‑A Mission NASA Helios‑B Mission NASA ISEE‑3 (ICE) Mission NASA ACE Mission NASA DSCOVR Mission NASA IBEX Mission NASA Solar Orbiter Heliospheric Imager Mission NASA SAGE‑III ISS Mission NASA SPACE Telescope Imaging Spectrograph Mission NASA ARIEL (ESA/NASA) Mission NASA OSAM‑1 (Restore‑L) Mission NASA Dragonfly (Titan rotorcraft) Mission NASA VERITAS (Venus orbiter) Mission NASA DAVINCI (Venus probe) Mission NASA SPHEREx Mission NASA MAGGIE (Mars Geophysical) Mission NASA CLPS – Peregrine Mission NASA CLPS – VIPER Delivery Mission NASA CAPSTONE Mission NASA Gateway (HALO / PPE) Mission NASA Mars Telecommunication Orbiter (cxl) Mission NASA Mars Polar Lander (MPL) Mission NASA Mars Climate Orbiter Mission NASA Pathfinder Mission Mission NASA SLS Block 1B (Exploration Upper Stage) Mission NASA Orion Crew Module Mission NASA Commercial LEO Destinations – Axiom Station Mission NASA ISS Expedition 1 Mission NASA ISS Expedition 70 Mission NASA CRS‑11 (Dragon) Mission NASA CRS‑21 (Dragon 2) Mission NASA Snoopy CubeSat Mission
Home / IAS Preparation / Economics Inflation

Inflation Study Notes: Meaning, Causes, Effects, Types, & Recent Trends for Finance Exams!

Last Updated on May 08, 2025
Also Read Economics Inflation in Hindi
Download As PDF
IMPORTANT LINKS
Agriculture Notes For UPSC Public Administration UPSC Notes Modern History Books For UPSC Overseas Citizen Of India Caste System & Panchayati Raj Godavari River Federalism Indira Point New Development Bank Battle Of Sinhagad Sankalp And Strive Schemes Digital India High Yielding Varieties Economic Growth Development League Of Nations Ease Of Doing Business Mid Day Meal Scheme Wildlife Protection Act 1972 UPSC Notes International Union Conservation Nature

Inflation is the rate at which the general price level for goods and/ or services rises, and subsequently, the purchasing power of the currency declines. It is one of the most quintessential topics as far as the Economics subject is concerned. For practical purposes too, one must have adequate knowledge about Inflation and its related aspects. In the following finance study notes, we shall explore more about the topic both for the exam point-of-view as well as practical knowledge.

 

    • Inflation indicates the decrease in the purchasing power of a unit of the currency in the country. It is measured in percentages.
    • It is categorized into three types, that is, Demand-pull, Cost-pull, and Built-in.
    • The most commonly used inflation indexes are the Consumer Price Index (CPI) and Wholesale Price Index (WPI)
    • Inflation measures the average change in price in a basket of commodities and services over a period of time. The opposite and rare fall in the price index of this basket of items is termed as “Deflation”

Let us study more about the topic with respect to its transliterated meaning, causes, effects, types of inflation, and recent trends in India. Finance and Banking Exam aspirants are advised to go through the below sections to have a clear understanding about Inflation in order to be well prepared.

Check out the UPSC Prelims Economics Syllabus on the linked article.

What is Inflation?

It is nothing but an increase in the general level of price of the goods and/ or services in an economy over a certain period of time. As per the law of Economics, when the general level of prices increase, each unit of currency buys a decreased number of goods and services. Hence, inflation also reflects a decrease in the purchasing power of money.

In the world of Economics, the word ‘inflation’ literally means a general price rise against a standard level of the purchasing power. As per Crowther’s findings, “Inflation is a state in which the value of money is falling and the prices are rising”.

FREEMentorship Program by
Ravi Kapoor, Ex-IRS
UPSC Exam-Hacker, Author, Super Mentor, MA
100+ Success Stories
Key Highlights
Achieve your Goal with our mentorship program, offering regular guidance and effective exam strategies.
Cultivate a focused mindset for exam success through our mentorship program.
2 Lakh+ Students Mentored Get
Get Free Mentorship Now
UPSC Beginners Program

Get UPSC Beginners Program SuperCoaching @ just

₹50000

Claim for free
Want to know more about this pass ?
Explore SuperCoaching

Advantages 

It means the price levels increase, but for an economy to run healthily, wages should also be rising. Inflation is a sign that an economy is flourishing. The Reserve Bank of India (RBI) considers the range of 4-5% as an ideal situation for inflation in India. Following are some of its advantages:

    • Slow inflation aids economic growth
    • Better than deflation as it does not lead to recession
    • Allows adjustment of prices
    • Helps in adjustment of real wages

Get all details of the RRB Grade B Phase II Exam here!

Disadvantages

On the other hand, now let’s take a quick look at the disadvantages of Inflation:

    • May lead to uncertainty and lower investments
    • Higher rate of inflation can lead to lower growth and instability
    • Reduces international competitiveness
    • Distorts the planning process
    • May also give rise to speculative investment
    • May result in a decline in the value of savings
    • May lead to inequality in the income distribution

Types of Inflation

The three types are demand-pull, cost-pull, and hyperinflation. Now let, us see the above types in brief:

Demand-pull 

    • Takes place when the total demand is growing at an unsustainable rate leading to an increased pressure on the scarce resources and a positive output gap.
    • When there is excess, producers utilize the situation, resulting in increased prices to derive greater profits.
    • The situation is also known as “too much purchasing power chasing too few goods”.

Know all about the Small Industries Development Bank of India (SIDBI) here!

Causes 

    • Declined exchange rate of the country’s currency: It results in increased prices of imports and reduces the foreign prices of a country’s exports.
    • Higher government spending: It will ultimately increase the money supply in the economy and create extra demand in the circular flow of income.
    • Lower tax rate: If the direct taxes are reduced, consumers will be left with more disposable income causing an increased demand.
    • Loose monetary policy: A decline in interest rates because of loose monetary policy by the central bank may stimulate too much demand causing inflation.
    • Increase in standard of living: It will ultimately lead to an increased demand for various goods associated with a decent standard of living.

Cost-push

    • It takes place when firms respond to the rising costs of materials used in the manufacturing of goods by increasing prices to protect their profits.
    • The cost of production may rise due to a rise in the cost of factors such as wages, imports, taxes, etc.

Prepare for the Bank PO Exam like never before!

Causes

    • Decline in the exchange rate of the country’s currency: It may lead to an increase in the prices of imported products such as raw materials, components, and finished goods, resulting in an increased price of goods.
    • Higher tax rate: If the rate of direct taxes increases, it will ultimately result in an increase in the prices of the final goods as a certain rate of tax is charged on every product.
    • Increase in the labour cost: It may rise when the rate of unemployment is low because skilled workers become very scarce. Such a scenario can stimulate their pay levels to increase.
    • Component costs: An increase in the prices of raw materials and other components can lead to cost-pull inflation. It may be because of a rise in the commodity prices such as oil, agricultural products, minerals, etc. used in manufacturing goods.
    • Tight monetary policy: It will ultimately lead to an increased rate at which the investors buy money from the bank. Eventually, it will result in the increasing cost for the firm thus causing cost inflation.

Hyperinflation

    • Hyperinflation is when there is rapid, excessive, and out-of-control price rice in the economy. It typically increases at a rate of 50% each month over time.
    • It can occur in times of war and economic tension in the underlying production economy, along with a central bank printing an excessive amount of money.
    • It can cause a surge in prices for basic goods like food and fuel as they become very limited.

Sign up for our best ever Bank Exam Live Coaching now!

Causes of Hyperinflation

 

    • Excessive money supply: If the increase in money supply is not aided by the economic growth as measured by the GDP (gross domestic product), it can lead to hyperinflation.
    • It often occurs when there is a loss of confidence in the country’s financial system and the central bank’s ability to maintain its currency’s value.

How is Inflation Measured?

It can be measured through the following indexes:

  1. Consumer Price Index (CPI)
  2. Wholesale Price Index (WPI)
CPI Points of Difference WPI
It is the average change in prices of the goods and/ or services over time that the consumer pays for a basket of goods and/ or services Meaning It measures the changes in the prices of goods sold and traded in bulk by the wholesale businesses to other businesses.
The RBI and other statistical agencies study the CPI in order to understand the price change of various commodities and keep inflation under control. Uses It is used to measure inflation. The rate of inflation is the difference between the WPI calculated at the start and end of a year.
Ministry of Statistics and Program Implementation Computed by Ministry of Commerce & Industry
CPI = (Cost of basket divided by Cost of basket in the base year) multiplied by 100 Formula (WPI of end of year – WPI of beginning of year)/WPI of beginning of year x 100

Read more about the IBPS Clerk Exam here!

How to Control Inflation?

Now, let’s have a quick look at some of the methods with which inflation can be controlled:

  • Monetary Policy

The Central Bank can increase the interest rates, making borrowing more expensive and savings more attractive. This would lead to a lower growth of consumer spending and an increase in investment.

  • Controlling money supply

As part of the monetary policy, many countries have set up an inflation target. The reason for this is if people believe the inflation target is credible, then it will also help to decrease inflation expectations. It will result in a controlled inflation.

  • Fiscal policy

The government can increase the rate of taxes and may also cut its spending. This will not only improve the government’s budget situation but also help reduce demand in the economy. Both these policies will help in reducing inflation by reducing the growth of total demand.

  • Wage control

 

If inflation is caused due to wages, then limiting the growth of wages can also help to control inflation. Lower wage growth will help in reducing cost-push inflation along with moderating the demand-pull inflation.

  • Supply-side policies 

Inflation is many times caused by lack of competitiveness and rising costs of raw materials. Supply-side policies may enable the economy to become more competitive and it will also help in controlling inflationary pressures.

Other methods to control inflation are:

    • Increasing population
    • Having a rational-wage policy
    • Price control
    • Rationing
    • Importing high-demand commodities
    • Controlling hoarding and speculation
    • Decreasing exports

Access all the Banking Previous Year Papers for practice here!

Effects of Inflation
Creditors & Debtors Creditors lose and debtors gain during inflation because debts are fixed in rupee terms. When debts are repaid by debtors, their real value declines due to the price level increase and hence creditors lose in monetary terms.
Bond & Debenture holders Bondholders earn fixed interest income thus such individuals suffer a reduction in real income when price rises.
Investors Individuals who invest money in shares during inflation are expected to gain since the possibility of earning business profit increases.
Salaried individuals & wage-earners Individuals earning a fixed income are negatively affected due to inflation, resulting in a reduction in the real purchasing power of the fixed-income earners.
Profit-earners, speculators, black marketers Profits tend to rise during inflation as businessmen raise the prices of their products which ultimately results in greater profits.

Recent Trends in Inflation in India
    • India’s growth in the first quarter of 2020-21 at -23.9% showed one of the highest contractions globally.
    • The 2020-21 real GDP growth for India is forecast in the range of -5.8% as per the RBI’s Survey of Professional Forecasters to -14.8% as per Goldman Sachs
    • The Organisation for Economic Cooperation and Development (OECD) projected a contraction of 10.2% in the financial year 2021 for the Indian economy.
    • The annual projections also show a strong likelihood of even the nominal GDP growth showing a contraction for 2020-21

You might also be interested in: CAMELS Rating System study notes!

The above finance study notes on Inflation is intended to guide candidates with the latest and most relevant information as far as the Indian economy is concerned. For more such study notes and exam preparation material, simply download the Testbook App and stay ahead in the game! Get access to the best exam preparation material at your fingertips with the Testbook app!

More Articles for IAS Preparation

Inflation FAQs

Monetary policy, controlling money supply, fiscal policy, wage control, and supply side policies are the methods to control inflation.

Consumer Price Index (CPI) and Wholesale Price Index (WPI) are the indices used to measure inflation.

The Reserve Bank of India (RBI) is responsible for managing inflation in India.

Inflation is the decrease in the purchasing power of money, which is reflected in the prices of goods and services in an economy.

Cost-pull, demand-pull, and hyperinflation are the types of inflation.
Report An Error
Exams Tests Super Practice