Economics-For Managers

Inflation is the rate of change in the overall price level of goods and services. Different types of inflation are: creeping, running, hyperinflation, and deflation. There are two sources of inflation, demand pull and cost push inflation. Demand pull inflation is caused due to excessive demand for goods and services. When aggregate demand increases, the price level also simultaneously moves up.

Cost push inflation results from an increase in the cost of factors of production or a decrease in the supply of goods with demand remaining the same. Inflation is measured by the Wholesale Price Index and the Consumer Price Index. The WPI is an indicator designed to measure the changes in the price levels of commodities that flow into the wholesale trade intermediaries. The consumer price index reflects the cost of living for a specific group in the population.

The CPI is measured on the basis of the change in retail prices of selected goods and services (essential goods) on which specific groups of consumers spend their money, based on their income.