Presented By :

1.Jay Ravasa

 Persistent Rise in prices. Rise in supply of money. Decreases the Value of money.

 Decline price levels of goods and services. Increase in Value of Money Decline in effective demand Increase in unemployment.

 Whole Sale Price Index

Consumer Price Index

Majorly: Cost Push Demand Pull/ Wage Inflation Administered Price Inflation/Pricing Power Sectorial Inflation

 Mild Inflation Strato Inflation Hyper Inflation

Zero Inflation Optimal Inflation

Lessens price distortion. Lowers the uncertainty of price drifts. Enhances economic growth. Adds liquid money to the economy. Eg: United States.

Good AND Bad.

Good: Allows govt. to lower real interest rates below zero. Prevents liquidity trap.
Bad: Slows down economic growth. Adds cost to long-term interest rates.

 Why Optimal Inflation rate should be low and positive? Why should Inflation be kept low? 1. When unanticipated-arbitrarily benefits debtors and hurts creditors. 2. When anticipated it can leave behind burden of heavy taxation. Eg. Tax distortion

 Inflation lowers the relative value of money holding. Why inflation should be above zero?
1.Maintain employment. 2.It ensures against falling prices.

3. Very low level of inflation can make nominal interest rates close to 0%

Growth and low inflation:

 Low inflation promotes: i) Stability ii) Confidence iii) Security

encourages investment

Promotes long-term economic growth

INFLATION-GDP

 The Sub-Prime Crisis.

(video) Changing trends. Affecting 9 parameters of the economy

 Main component of monetary policy transmission. Credit growth statistics: In mid-July 2010- 21.3% In mid-July 2011- 19.9%

 RBI has tightened policies. Expected decline in inflation. Inflation rate hike cycle will slow down. Signs of slow growth in economy.

 U.S. constitutes 11% of Indias goods export. Also a holds a huge share in service export sector. U.S. economy directly proportional to Indian exports.

 36% rise in imports. Negative trade balance rose to 32bn$ from 27bn$. Fall in crude price boon for India.

 2008- Growth rate less than 6.8% 2009 Increased to 7.4%

-Distorts Investors perception.

-2009-2010 (April-Feb): 24.6bn $

- 2010-2011(April-Feb): 18.3bn $

- Reduced access to financial resources - Falling corporate profits - Business perceptions of low returns

- Heightened risk

 Outbound FDI up by 144% since 2009-2010.

Mar-2011 : 43.9 bn $ invested by India.

RBI say : Overseas investment- catalyzes export growth

-FII: Foreign Institutional Investors.

-Include pension fund, insurance fund, mutual fund. -FII inflow in India is increasing.

 Economic slowdown has affected global investors. The perception of low returns reborn.
Major part of investments over. Slow moving graph for the rest of the year.

 US$-Re rate has an appreciation bias. Increased inflation caused High in CPI by: 10.88% -2009 13.19% -2010 U.S. FDI up by 43% in 2010.

 The demand and supply factors of rupee may result in 3 conditions:

1st scenario: Re- depreciation: Rise in oil prices + exit of FII money

INR USD

55/60-1

 2nd scenario: -Re- appreciation: FII inflow persistent Imports could + cheaper Increase in FDI

3rd scenario: - Status quo

A crisis in an economy impacts other economies via three different channels :

 Affects Countries Trading Partners Affects Share of Imports Affects Share of Exports Indias Share in Global Trade Volumes

1. Foreign Direct Investment [ FDI ] : Slowdown in FDI and the Volume of FDI has reduced to a great extent 2.Foreign Institutional Investment : With a turmoil in global financial markets, Fore inflows will decline 3.External Commercial Borrowings : External commercial borrowings could also decline if the European crisis spreads to other economies 4. Remittances and NRI deposits : NRI depositors withdrew funds in wake of crisis and latter shows whether Indians living abroad stopped sending funds to their homes again because of the crisis

 This channel shows confidence declines in business and households seeing the global uncertainty.

The decline in confidence can disrupt the economic conditions.

Decline in confidence is also one of the reasons for decline in business investments which led to decline in overall Indian GDP growth. Credit growth also declined because of decline in business investments.

If You dont save Greece if u dont save that one crater than if greece emerges as default than it will create problems to every country who has lended the money and soon everyone will emerge as bankrupt and so we have to apple such type of measures to save global that will indirectly curb the inflation .. And future details will be explain in detailed by others ..

Effects of Inflation
Investments Interest rates Exchange rates Unemployment

Petrol and Diesel prices have been ever increasing in Mumbai.

The new petrol price in Mumbai is 71.92 AS ON 16TH September 2011

 Direct example of cost push inflation OPEC squeezed supply of oil Value of Rupee depreciated Increase in price of imports Increase in prices of fuel Increase in prices of commodities

Use of bicycles , electric cars Set the same price of fuel all over the country Lower taxes on petroleum products Remove customs duty on crude oil

 Inflation in food products has driven overall inflation. As per latest data Food Inflation stands at 9.5 per cent.

 Our agriculture is in crisis The growing penetration of big corporates in the food economy Price hikes of diesel and fertiliser

Item

Retail Price (end-January 2008)

Retail Price (end-January 2009)

Retail Price (end-January 2010)

Retail Price (end-January 2011)

Rice Wheat
Milk (Rs./litre) Groundnut Oil

17 13
20 121

22 13
21 109

23 16
22 113

23 15.5
25 135

Mustard Oil Vanaspati

Salt Pack (Iodized) Onion

69 67
10 9

77 54
11 21

71 57
12 23

79 77
13 33

State intervention in both production and distribution Fixed rates for essential commodities through PDS Stop artificial scarcity of food items and black marketing Deregulation of fuel and fertilizer prices Cost of agricultural inputs to be subsidized

 Inflation is a tax on poor and long term lenders India has boom and bust cycle Aggregate demand is increasing while Aggregate supply is constant

 Need to fill the gap between ADD and ASS

Either increase supply or decrease demand Increase production capacity

Or build new plants

 CRR-Cash Reserve Ratio Repo Rate and Reverse Repo Rate Open market operations

 Inflation can be checked by controlling the supply of money

The Measures are Control over Money Credit control

Decrease in public expenditure Delay in payment of old debts Increase in taxes Over valuation of money

 Increase in the production Proper commercial policy Encouragement to savings Proper Investment policy Marginal Requirements Labour market reforms.

 Increase Agricultural production. Control of illegal activities. Population Control. To supply basic education to all Heavy investments in social infrastructure. Investment in Entrepreneurship.