What are the causes of inflation? How it can be Controlled?

Causes of inflation

 

Introduction

It represents the rise in general price level. Basically when the state bank of the country issue the over demanded notes then it decrease the value of money. Meanwhile raises the general price level in the market.

 

Some authors define the inflation as follows By

 

J.M.Keynes

 

“Inflation is a rise in price level after the full employment has been achieved”

 

By R.P Kent

 

“Inflation is nothing more than a sharp upward movement in the price level”

 

By Crowther

 

“In the state of Inflation the prices are raising, i.e. the value of money is falling”

 

Causes of Inflation

Demand pull Inflation

 

In which inflation arises due to incr ase in demand of goods. On the other hand supply of the goods not according to demand of consumers at the result price level increase of existing goods, this situation creates the inflation in the market.

 

Causes of Demand pull inflation

 

1.    Increase in supply of money

 

Rapid increase in supply of money creates the demand pull inflation. Due to it income of people rises, and they demanded more goods but on the other hand supply not according to demand of goods, at the result price level of existing goods will rise, after it inflation occur.

 

 

2.    Deficit financing

 

When government of the country borrows money from banks or prints more notes to finance the projects. These projects become productive after sometimes but the income of the factors engaged with these projects increase suddenly. This increase in income causes increase in aggregate demand for goods. At the result price level of existing goods will rising up.

 

 

3.    Foreign Remittance

 

When foreign income of the people increase, due to this purchasing power of the peoples also rising up. But supply of goods not according to requirement of consumers, after it price level of exiting goods will increase due to increase in demand of goods.

 

4.    Rapid increases in population

 

When the rate of population rises very sharply, then goods are more demanded in the market. But supply of goods and services not is according to demand at the result price level of goods rising up as well as inflation occurs.

 

5.    Increase in wages

 

When the wages of the employees increased then the income level of peoples will rise as before they earned. Then purchasing power of the consumer increased but on supply side, it’s not according to demand and after it prices are shooting up.

 

 

6.    Hoarding and smuggling

 

The artificial shortage called hoa ding may result in rising prices. Similarly, when the output of our country is smuggled abroad, the prices increase due to domestic shortage of goods.

 

 

7.    High consumption

 

High level of consumption, just like, adds fuel to the fire of inflation. When people increase their consumption then producer increase the prices of goods, and inflation occurs

 

 

8.    Black money

 

It may e rn through smuggling tax evasion etc. increase the demand for luxurious goods. After it prices of these goods rise, and inflation occurs

 

 

9.      Non-development expenditure

 

The larger non-development expenditures of a country increase the money supply that creates more demand for goods and services. It thus becomes an active factor to inflationary pressure in a country.

 

Cost push Inflation

 

When the cost of production increase and producer raise the price level in the market, it’s called cost push inflation. During the manufacturing process, increase the cost of Factor of Production show the high cost of production, at the result producer reduce the supply of goods due to lesser profit ratio, the general price level increased

 

Causes of cost push inflation

 

1.    Rising prices of imported goods

 

 

When the prices of imported goods increases then cost of producers goods also rises, and for the purpose earning more profit producer rise the price level and meanwhile inflation occurs.

 

2.    Rise in oil and Gas prices

 

When the government of the country increases the prices of oil and gas for industries etc. then cost of production will rise and after it price also rise and inflation occurs in the market

 

 

3.    Increase in wages

 

Due to shortage of skilled and efficient labour in the market, the remaining part raises their wag s l vel. Due to this rise producers will pay more as before. After it cost of the producer will rise and inflation occurs.

 

4.    Increase in indirect Taxes

 

When increase in indirect taxes (sales tax, excise, duties etc) result in increasing the cost of production of goods after it the manufacturer increased in general price level of the goods.

 

 

5.    Rise in support prices of agriculture corps

 

In order to protect the interests of the farmers, the agriculture countries provide support to agricultural products. It has cost push inflationary effect on the economy.

 

 

6.    Sick industrial units

 

There are a lot of industrial units which are closed due to shortage of fund. For this reason the output of industry is decreasing and price level rising.

 

 

Measurement to control the inflation

 

Basically inflation is very danger factor for the economy. And for its controlling not only one Measurement is required, so under following some sort of measurement to control the Inflation from the market.

 

1.    Proper check on monetary expansion

 

Currency notes should issued by central bank of the country according to the requirement of the peoples and industries. If over demanded notes are controlled then day to day inflation also controlled from the market.

 

2.    Deficit financing

 

The government of the country should control the deficit financing in the form of bank borrowing and printing notes of new currency.

 

 

3.    Reduction in Tax rates

 

Government should reform the whole structure of Tax for the purpose of to attracting the new investors and businessmen etc. after it production level increase, as well as pri e falling.

 

 

4.    Revival of sick industries

 

The revivals of sick industries units, would increase production and reduce inflation

 

5.    Compulsory saving

 

The government of the country may start schemes of compulsory savings to take from each person some portion of his income. For the purpose of decreasing saving power of consumers,

 

6.    Reduction in import duties

 

The reduction in import duties on industrial raw material, machinery and se ected consumer item would greatly help in checking smuggling and controlling inflation in the country.

 

 

7.    Price control committee .

 

Price committees must be formulated to control the price level. The weekend markets must be introduced in order to stabilize the price level.

 

 

8.    Consumer courts

 

The consumer courts can contribute a lot to control inflation in the country.

 

9.    Increase in production

 

The increase in production of goods is helpful to increase the supply in the market. The increased production can regulate the price level.

 

 

10.                 Control of investment

 

The govt. should control the investment for those areas where the output equal to zero. And motivate the level of investment where the productivity level rises.

 

11.                 Control on marriage expenditure

 

 

The govt. control on excessive spending on marriage ceremonies can greatly help in controlling inflation.

 

12.                 Special bazaars

 

The govt. should arrangement for holding Friday, Tuesday, and Sunday bazaars in big cities to ensure the availability of fruits, vegetable and kitchen items at fair prices, will helpful to control the inflation.

 

Conclusion

 

As above discussed inflation is very difficult to control. But being a Muslims we have a strong Believe on Allah, because Allah can do everything. If we spend our life according to Islam then all the problems a e easily remove from the economy. Richer give the Zakat to poorer, then they can buy basic necessities of life. And all above measurement are interlink each other if these are implemented by the govt. then we can say 5 to 10 year required to remove the inflation from the market.

Note: At present, two educational subsystems are being realized in Russian universities: one-stage basic educational programs for the training of graduates, primarily focused on practical production activities, and two-level basic educational programs in the fields of bachelor’s and master’s training that have a research and pedagogical orientation. If at the beginning of the 90s bachelor’s training was carried out on the scarcely qualified specialties of lawyers, economists, managers, now the preparation for the opening of bachelor’s directions in the field of technical and many other educational programs is being conducted. Several years ago, Russia ratified the Lisbon Convention, which was signed in 1999, but did not take any possible steps to implement it. In particular, we clearly do not distinguish the concepts of academic and professional qualifications, which is of fundamental importance in the transition to a multi-level system of higher education. According to this convention, an academic qualification is a document issued at the end of a higher education institution, and the entry in this document indicates professional qualifications that may or may not be present in the document. Nevertheless, today in our country there is a number of higher educational institutions actively participating in the reforms of the Bologna process. In the Moscow State University. M.V. Lomonosov is implementing a two-stage (from economists) and traditional one-stage training with a training period of up to six years (for physicists). At the Moscow Institute of Physics and Technology, training cadres for the RAS and for foreign elite research centers, there has always been a two-stage training program. In 1994, the Pomor State University accumulated experience of multi-level training at the Humanities Faculty.

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