Project report on inflation

Types of Inflation:-

· Demand-pull Inflation
It occurs when the demand for goods or services exceeds the ability to produce them. Price appreciation is caused by a mismatch between supply and demand (a shortage).
· Cost-push Inflation
When the cost of production rises, this happens. The price of the product rises as the price of the inputs (labor, raw materials, etc.) rises.
· Built-in Inflation
Built-in Inflation is the outcome of anticipating future inflation. Price increases lead to greater earnings in order to cover the increasing cost of living. As a result, high wages raise the cost of production, which has an impact on product pricing. As a result, the circle continues.

Formula to calculate inflation rate :-

Inflation rate = [(B- A) / A] × 100 
A = starting cost 
B = ending cost 
In the formula, A would be the starting point in the Consumer Price Index for a specific good or service, which could either be a specific year or month. And B would be the current recording in the Consumer Price Index for this same good or service. 

To use the formula, subtract A from B to find out how much the price of that specific good or service has changed. Then divide the result by A (the starting price) which will leave you with a decimal number. Convert the decimal number into a percentage by multiplying it by 100. The result is the rate of inflation!

Advantages of Inflation :-

• Deflation is potentially very damaging to the economy and can lead to lower consumer spending and lower growth. For example, when prices are falling, consumers are encouraged to delay purchasing in the hope prices will be cheaper in the future. 

• A moderate inflation rate reduces the real value of debt. If there is deflation, the real value of debt increases leading to a squeeze on disposable incomes. 

• Moderate rates of inflation allow prices to adjust and goods to attain their real price. 

• Moderate rates of wage inflation, allow relative wages to adjust. Nominal wages are sticky downwards. With moderate inflation, firms can freeze pay rises for less productive workers – to effectively give them a real pay cut.

• Moderate rates of inflation are a sign of a healthy economy. With economic growth, we usually get a degree of inflation.