Context:- inflation quickened to a four-month high
How inflation is measured:-
- Base year:-2012
- developed by The National Statistical Office (NSO), Ministry of Statistics and Programme Implementation
- 3 types, CPI RL, CPI Urban, CPI all
- Monthly basis: for urban, rural, all India.
- Annual: with lag of one month.
- Includes both Goods and services.
Effect of inflation:-
- Helps in the growth
- Increase income
- helps in expansion of business.
- May lead to hyper inflation, means Burdon on consumer.
- rupees value will slide
- forex reserve will decrease
- export will decrease because foreigner will have to pay more.
- May lead to collapse of economy
- Examples- Recent Greece crises, Venezuela crises
- Will lead to crowding out effect.
What RBI must do
- Increase the bank rate.
- Increase SLR or follow conservative monetary policy.
- government must refrain from spending.