Inflation in brief:
Inflation means a reduction in the value of money; in other words, a rise in general price levels. The literal meaning of the word inflation is to blow up or get bigger. If the amount of money in a country - the money supply - grows faster than production in that country, the average price will rise as a result of the increased demand for goods and services. Inflation can also be caused by higher costs being charged on to the end-user. These might be raw material costs or production costs which have risen, but could also be higher tax rates. These price rises cause the value of money to fall. You can therefore buy less with the same amount of money. But this does not need to have an immediate effect on purchasing power. Purchasing power only declines if wages rises less rapidly than prices.Consequences of limited inflation:
Governments often strive for an inflation rate of around 2 to 3 percent per year. Such low inflation is beneficial for the economy. Low inflation encourages consumers to buy goods and services. Delaying will mean that they would have to pay more for the same product. Low inflation also makes it more appealing to borrow money, since interest rates are usually also low during periods of low inflation. Maintaining low inflation is therefore an important goal for governments and central banks because of the economic benefits.
Consequences of high inflation:
As indicated above, limited inflation is good for the economy. But high inflation is less beneficial. High inflation can cause the population’s confidence in their own currency and economy to decline, and it can be less appealing for foreign investors to invest in the country concerned. High inflation therefore often has a harmful effect on economic growth. If inflation gets too high, a country’s central bank will often intervene by raising its interest rates and thus discourage the creation of money.
Most recent CPI India (inflation figure) 10.748 %
Source:http://karnatakacoc.blogspot.in/
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