Inflation is a state in which the prices of goods and services rise on the one hand and
value of money falls on the other.
Inflation is of two types:
- Demand Pull Inflation: Demand Pull inflation is that inflation when rices rise due to higher
Demand for goods and services over the available supply. In other words, demand pull
Inflation takes place when increase in production lags behind the increase in money supply. - Cost Push Inflation: It is another type of inflation in which prices rise due to increased input
Costs.
Deflation: Deflation is that state in which the prices of goods and services fall and the value of
money rises.
Anti-Inflationary Measures
The anti-inflationary policies of Government include strict fiscal and monetary discipline;
rationalization of excise and import duties of essential commodities to lighten the burden on the
poor; effective supply-demand management of sensitive items through liberal tariff and trade
policies; and strengthening the public distribution system. The RBI has adopted a policy of
monetary tightening, raising the cash reserve ratio (CRR) — the share of deposits that banks
park as cash with the central bank — and the short-term inter-bank lending (repo) rate lo contain
inflation.
