Page 48 - Banking Finance September 2022

ARTICLE

INFLATION -

CONCEPT, CAUSES

& CONTROL

MEASURES

1. Concept Economists categorized three separate factors

Inflation refers to the rise in the prices of most goods and that cause a rise or fall in the price of goods:
services of daily or common use, such as food, clothing, A change in the value or production costs of the
housing, recreation, transport, consumer staples, etc. commodity,
Inflation measures the average price change in a basket of A change in the value of money which then was usually
commodities and services over time. It is indicative of the a fluctuation in the commodity price of the metallic
decrease in the purchasing power of a unit of a country's content in the currency, and
currency. This is measured in percentage.
Currency depreciation resulting from an increased
supply of currency relative to the quantity of
Sudden rise of prices is not inflation. It is called as price
redeemable metal backing the currency.
rise. If it happens more often, then it is called as
inflation. Inflation is proof of growth. When unchecked,
2. Effects of Inflation
this becomes expensive, purchasing power of money
gets reduced. It affects the poor most, because major The purchasing power of a currency unit decreases as the
portion of their earnings goes to meet inflation. commodities and services get dearer. This also impacts the
Inflation pushes interest rates up, dampens cost of living in a country. When inflation is high, the cost of
investment and leads to depreciation of currency. living gets higher as well, which ultimately leads to a
deceleration in economic growth.

About the author
3. Types of inflation
Creeping inflation: It is a condition where the inflation in a
S B Karimullah Sahib
country increases slowly but continuously over a period of
Faculty,
Union Bank Staff Training Centre time and the effect of inflation is noticed after a long period
Hyderabad.
of time. It is a general price increase say up to 4% a year.

48 | 2022 | SEPTEMBER | BANKING FINANCE