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    Inflation

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    Sharath Reddy
    Rising energy prices, increases in excise duties and service taxes, and higher raw material costs can contribute to inflation. When the costs of production and distribution increase, companies often pass those costs on to consumers in the form of higher prices. Expansion of the private sector and increases in exports can also increase demand for goods and services, putting upward pressure on prices. Shortages of key production factors like labor, materials, capital and disruptions from natural calamities, industrial disputes, or outdated production methods can reduce supply and thus lead to inflation.

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    Inflation

    Uploaded by

    Sharath Reddy
    19 views1 page
    Rising energy prices, increases in excise duties and service taxes, and higher raw material costs can contribute to inflation. When the costs of production and distribution increase, companies often pass those costs on to consumers in the form of higher prices. Expansion of the private sector and increases in exports can also increase demand for goods and services, putting upward pressure on prices. Shortages of key production factors like labor, materials, capital and disruptions from natural calamities, industrial disputes, or outdated production methods can reduce supply and thus lead to inflation.

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    Factors affecting inflation

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    Rising energy prices, increases in excise duties and service taxes, and higher raw material costs can contribute to inflation. When the costs of production and distribution increase, companies often pass those costs on to consumers in the form of higher prices. Expansion of the private sector and increases in exports can also increase demand for goods and services, putting upward pressure on prices. Shortages of key production factors like labor, materials, capital and disruptions from natural calamities, industrial disputes, or outdated production methods can reduce supply and thus lead to inflation.

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    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
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    19 views1 page

    Inflation

    Uploaded by

    Sharath Reddy
    Rising energy prices, increases in excise duties and service taxes, and higher raw material costs can contribute to inflation. When the costs of production and distribution increase, companies often pass those costs on to consumers in the form of higher prices. Expansion of the private sector and increases in exports can also increase demand for goods and services, putting upward pressure on prices. Shortages of key production factors like labor, materials, capital and disruptions from natural calamities, industrial disputes, or outdated production methods can reduce supply and thus lead to inflation.

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    Rising Energy Prices:

    If the price of energy rises, then it will cost more to make


    a product, or to ship the product, and the company will then pass on some or all of
    this cost to the consumer, which raises prices and thus inflation.

    Excise Duty and Service Tax:

    Any increase in these taxes will have an


    inflationary impact. This would result in further tightening of the monetary policy.

    Prices of Raw Materials: Increase in raw material prices makes manufacturers


    to increase their product price, this leads to increase in prices across the industry.

    Expansion of Private Sector: The expansion of the private sector also tends
    to raise the aggregate demand. For huge investments increase employment and
    income, thereby creating more demand for goods and services. But it takes time for
    the output to enter the market. This leads to rise in prices.

    Increase in Exports: When the demand for domestically produced goods


    increases in foreign countries, this raises the earnings of industries producing export
    commodities. These, in turn, create more demand for goods and services within the
    economy, thereby leading to rise in the price level.

    Shortage of Factors of Production: One of the important causes affecting


    the supplies of goods is the shortage of such factors as labor, raw materials, power
    supply, capital, etc. They lead to excess capacity and reduction in industrial
    production, thereby raising prices.

    Natural Calamities: Drought or floods is a factor which adversely affects the


    supplies of agricultural products. The latter, in turn, create shortages of food
    products and raw materials, thereby helping inflationary pressures.

    Industrial Disputes: In countries where trade unions are powerful, they also
    help in curtailing production. Trade unions resort to strikes and if they happen to be
    unreasonable from the employers viewpoint and are prolonged, they force the
    employers to declare lock-outs.
    In both cases, industrial production falls, thereby reducing supplies of goods. If the
    unions succeed in rising money wages of their members to a very high level than
    the productivity of labor, this also tends to reduce production and supplies of goods.
    Thus they tend to raise prices.

    Law of Diminishing Returns: If industries in the country are using old


    machines and outmoded methods of production, the law of diminishing returns
    operates. This raises cost per unit of production, thereby raising the prices of
    products.

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