Inflation Inflation is a rise in the general level of price | UPSC Notes EPFO Labour Law

Inflation

Inflation is a rise in the general level of prices of goods and services in an economy over a period of time.
When the general price level rises, each unit of currency buys fewer goods and services. Therefore, inflation also reflects an erosion of purchasing power of money.
According to Crowther, “Inflation is State in which the Value of Money is Falling and the Prices are rising.”
In Economics, the word ‘inflation’ refers to General rise in Prices Measured against a Standard Level of Purchasing Power.

Several variations on inflation used popularly to indicate specific meanings.

➨ Deflation is when the general level of prices is falling. It is the opposite of inflation. Also referred to as Disinflation.The lack of inflation may be an indication that the economy is weakening.

➨ Hyperinflation is unusually rapid inflation in very short span of time. In extreme cases, this can lead to the breakdown of a nation’s monetary system with complete loss of confidence in the domestic currency. One of the earlier examples of hyperinflation occurred in Germany in early 1920s after the First World War, when prices rose 2,500% in one month.

➨ Stagflation is the combination of high unemployment with high inflation. This happened in industrialized countries during the 1970s, when a bad economy was combined with OPEC raising oil prices led to low growth.

Inflation is all about prices going up, but for healthy economy wages should be rising as well. The question shouldn’t be whether inflation is rising, but whether it’s rising at a quicker pace than your wages, if the answer is a Yes only then inflation is problematic.

Finally, inflation is a sign that an economy is growing. The RBI considers the range of 4-5 % as comfort zone of inflation in India.