Measures to control inflation

here are some of the measures that are taken by banks as well as goverment to control inflation

1. Project Report Project Report
OnOn
Measures ToMeasures To
Control InflationControl Inflation

2. Meaning Meaning
Inflation in general terms means expansion.Inflation in general terms means expansion.
In the context of prices inflation means continous rise in In the context of prices inflation means continous rise in
price level.price level.
Definition:Definition:
According to Gregory,` it is an increase in the quantity According to Gregory,` it is an increase in the quantity
of purchasing power`.of purchasing power`.
Johnson defines inflation,` as the increase in the Johnson defines inflation,` as the increase in the
quantity of money faster than the national output is quantity of money faster than the national output is
expanding`expanding`

3. Types of InflationTypes of Inflation
There are many types of inflation. There are many types of inflation.
It can be classified on the basis of the following :It can be classified on the basis of the following :
A-A- On the basis of the degree of government On the basis of the degree of government
controlcontrol :: ::

Open inflationOpen inflation : :
Situation in which no steps are taken to control rising Situation in which no steps are taken to control rising
pricesprices..

4. According to Milton, According to Milton,
““it is a process in which prices are allowed to rise without it is a process in which prices are allowed to rise without
any attempt on part of government to control them. any attempt on part of government to control them.
Under open inflation goods are distributed through price Under open inflation goods are distributed through price
 mechanism. Price mechanism is a situation in which ,  mechanism. Price mechanism is a situation in which ,
those people who have large money to spend,  buy more those people who have large money to spend,  buy more
goods.”goods.”
 Suppressed inflation-Suppressed inflation-
Situation in which rising prices are controlled through Situation in which rising prices are controlled through
measures taken by the government . measures taken by the government .

5. According to FRIEDMAN, According to FRIEDMAN,
““suppressed inflation is more dangerous than open suppressed inflation is more dangerous than open
inflation because of the corrupt officials responsible for inflation because of the corrupt officials responsible for
administrating price control ,black market raises its ugly administrating price control ,black market raises its ugly
head”.head”.
B-B- On the basis of political conditionsOn the basis of political conditions :: ::
1. War time inflation-1. War time inflation-
In order to meet the war expenses government increases In order to meet the war expenses government increases
the supply of   money. Large proportion of the production the supply of   money. Large proportion of the production
is bought by government itself. Relatively small proportion is bought by government itself. Relatively small proportion
is left to the general public.is left to the general public.

6. 2 .2 .Peace time inflation-Peace time inflation-
Underdeveloped countries need large resources for Underdeveloped countries need large resources for
economic planning. In order to mobilize resources, economic planning. In order to mobilize resources,
government has to resort deficit financing .It leads to government has to resort deficit financing .It leads to
inflation which is known as peace time inflation.inflation which is known as peace time inflation.
C- On the basis of the scopeC- On the basis of the scope :: ::
Sectoral inflation-Sectoral inflation- When inflation affects only a particular When inflation affects only a particular
part of the country or covers only one or two goods like part of the country or covers only one or two goods like
pulses,petrol etc,it is called sectoral inflationpulses,petrol etc,it is called sectoral inflation..
Comprehensive inflation-Comprehensive inflation- When inflation is not confined When inflation is not confined
to a given part of the country or a few goods ,but to a given part of the country or a few goods ,but
comprise the entire country and all goods ,it is called comprise the entire country and all goods ,it is called
comprehensive inflationcomprehensive inflation

7. D-D- Some other general types of inflation are:Some other general types of inflation are:
Creeping inflation :Creeping inflation :
In this inflation   prices rise very slowly.In this inflation   prices rise very slowly.
Such an inflation is not only considered beneficial to the Such an inflation is not only considered beneficial to the
economy but is also considered essential to some extent. economy but is also considered essential to some extent.
Some economists are of the view that 3% rise in prices can Some economists are of the view that 3% rise in prices can
be called creeping inflation .be called creeping inflation .
Appropriate and desirable in the interest of national Appropriate and desirable in the interest of national
 development . development .
Running inflation:Running inflation:
When there is rapid increase in prices in very short When there is rapid increase in prices in very short
period of time it is called running inflation .In this case period of time it is called running inflation .In this case
rate of inflation is between 80 and 100% over a decade. rate of inflation is between 80 and 100% over a decade.
Such an  inflation has adverse effect on poor and middle Such an  inflation has adverse effect on poor and middle
sections of the society.sections of the society.

8. Measures to control inflation::Measures to control inflation::

1. Monetary measures-1. Monetary measures- Classical economists are of the Classical economists are of the
view that inflation can be checked by controlling the supply view that inflation can be checked by controlling the supply
of money. Some of the important monetary measures to of money. Some of the important monetary measures to
check the inflation are as under:check the inflation are as under:
    Control over money-Control over money-
It is suggested that to check inflation government should It is suggested that to check inflation government should
put  strict restrictions on the issue of money by the central put  strict restrictions on the issue of money by the central
bank.bank.
 Credit control-Credit control-
Central bank should pursue credit control policy .In order Central bank should pursue credit control policy .In order
to control the credit it should increase the bank rate ,raise to control the credit it should increase the bank rate ,raise
minimum cash reserve ratio etc. It can also  issue notice to minimum cash reserve ratio etc. It can also  issue notice to
other banks in order to control credit other banks in order to control credit

9. 2.Fiscal measures- 2.Fiscal measures- Measures taken by the Measures taken by the
government to control inflation.government to control inflation.
A: Decrease in public expenditure-A: Decrease in public expenditure- One of the main reasons One of the main reasons
of inflation is excess public expenditure like building of of inflation is excess public expenditure like building of
roads ,bridges etc. Government should drastically scale roads ,bridges etc. Government should drastically scale
down its non essential expendituredown its non essential expenditure..
  
B-Delay in payment of old debts:B-Delay in payment of old debts: Payment of old debts that Payment of old debts that
fall due should be postponed for sometime so that   people fall due should be postponed for sometime so that   people
may not acquire extra purchasing power.may not acquire extra purchasing power.
  
C-Increase in taxes :C-Increase in taxes : Government should levy some new Government should levy some new
direct taxes and raise rates of old taxes.direct taxes and raise rates of old taxes.
D-Over valuation of moneyD-Over valuation of money: : To control the over valuation of To control the over valuation of
money it is essential to encourage imports and money it is essential to encourage imports and
discourage  exports                                                    discourage  exports                                                                             
                                                                                                                          

10. 
Other measuresOther measures
                      1 Increase in the production-1 Increase in the production- One of the major causes One of the major causes
of the inflation is the excess of demand  over supply ,so of the inflation is the excess of demand  over supply ,so
those goods should be produced more whose prices are those goods should be produced more whose prices are
likely to rise rapidly .In order to increase production public likely to rise rapidly .In order to increase production public
sector should be expanded and private sector should be sector should be expanded and private sector should be
given more incentives.given more incentives.
2 Proper commercial policy-2 Proper commercial policy- Those goods which are in Those goods which are in
scarcity should be imported as much as possible from other scarcity should be imported as much as possible from other
countries and their export should be discouraged.countries and their export should be discouraged.
3 Encouragement to savings3 Encouragement to savings – –During inflation During inflation
government should come out with attractive saving government should come out with attractive saving
schemes. It may issue 5 or 10 year bonds in order to attract schemes. It may issue 5 or 10 year bonds in order to attract
savings.savings.

11. 
4 Proper investment policy-4 Proper investment policy- Investment in those industries Investment in those industries
should be increased wherein more production of goods can should be increased wherein more production of goods can
be generated over a short period of time .Less investment be generated over a short period of time .Less investment
should be made in industries having long production should be made in industries having long production
period. period.
5 Marginal requirements-5 Marginal requirements- It is the difference between the It is the difference between the
value of security and loan advanced .value of security and loan advanced .

12. Inflation rates in IndiaInflation rates in India
                                      2006-072006-07          2007-082007-08
                                                            
Inflation               Inflation                7.8                 12.0 7.8                 12.0
Food inflation        Food inflation         6.3                 17.6 6.3                 17.6
Non food inflationNon food inflation 10.2             10.2             6.8 6.8
  

13. Result of Inflation in Zimbabwe inResult of Inflation in Zimbabwe in
20082008
Hyper Inflation Zimbabwe: 355,000%!Hyper Inflation Zimbabwe: 355,000%!
The inflation in Zimbabwe for the month of The inflation in Zimbabwe for the month of
March 2008 rose to 355,000%! Yes, 355,000 per March 2008 rose to 355,000%! Yes, 355,000 per
cent! It more than doubled from the February cent! It more than doubled from the February
figure of 165,000%.. figure of 165,000%..

14. Almost 80% of the nation is unemployed. Almost 80% of the nation is unemployed.
The Zimbabwean central bank has introduced The Zimbabwean central bank has introduced
$500 million bearer cheques (or currency notes) $500 million bearer cheques (or currency notes)
for the public, and $5 billion, $25 billion, $50 for the public, and $5 billion, $25 billion, $50
billion agro-cheques for farmers. billion agro-cheques for farmers.
The nation had introduced $250 million bearer The nation had introduced $250 million bearer
chequescheques

15. A sausage sandwich sells for Zimbabwean $50 A sausage sandwich sells for Zimbabwean $50
million. million.
A 15-kg bag of potatoes cost Zimbabwean $260 A 15-kg bag of potatoes cost Zimbabwean $260
million. million.
But then, Zimbabwean $50 million is roughly But then, Zimbabwean $50 million is roughly
equal to US$ 1equal to US$ 1

16. 
Thanks Thanks
Presented by:Presented by:
Ravi Inder SinghRavi Inder Singh
Tina ChopraTina Chopra
Kulwinder KaurKulwinder Kaur