INFLATION

INTRODUCTION:
Inflation bears careful watching, but we can keep it under control.
We all have come across about the hike in petrol prices, food prices.in daily newspapers..Food inflation surges to 9.80% is Indias scenario today!!! And now India is facing with inflation. INFLATION is a rise in the general level of prices of goods and services in an economy over a period of time. Inflation effects in the purchasing power of money a loss of real value in the internal medium of exchange and unit of account in the economy. The chief measure of price inflation is the inflation over time. However, there is a general agreement amongst economists that economic inflation may be caused by either an increase in the money supply or a decrease in the quantity of goods being supplied. These days economies of all countries whether underdeveloped, developing as well developed suffers from inflation. Inflation's effects on our economy are various and can be simultaneously positive and negative. Negative effects of inflation include a decrease in the real value of money and other monetary items over time, uncertainty over future inflation may discourage investment and savings, and high inflation may lead to shortages of goods if consumers begin hoarding out of concern that prices will increase in the future. Positive effects include ensuring central banks to adjust nominal interest rates and encouraging investment in non-monetary capital projects. Because of many reasons, first, the rate of inflation these years is much higher than experienced earlier periods. Second, Inflation in these years co-exists with high rate of unemployment, which is a new phenomenon and made it difficult to control inflation Now lets take an example for instance, when gold was used as currency, the government could collect gold coins, melt them down, mix them with other metals such as silver, copper or lead, and reissue them at the same nominal value. By diluting the gold with other metals, the government could issue more coins without also needing to increase the amount of gold used to make them. When the cost of each coin is lowered in this way, the government profits from an increase in This Practice would increase the money supply but at the same time the relative value of each coin would be lowered. As the relative value of the coins becomes less, consumers would need to give more Coins in exchange for the same goods and services as before. These goods and services would Experience a price increase as the value of each coin is reduced this how people would be cheated.

EFFECTS:
PETROL PRICES:
The situation of financial markets, for there is an important role being played by the international financial market on the world oil market. This mainly takes place through the investment funds and speculators in the future oil market, who contributes to the rise or decline of prices as per their view

of the oil market on one hand and the investment opportunities in the different financial channels on the other hand. The decline of interest rates on many of the main currencies, fluctuations in the stock market together with a decline in dollar value and increase in the demand for raw materials pushed some investors in the future market to sign contracts for the purchase of row materials, particularly oil contracts, a matter which has remarkably contributed to the rise in oil prices. There is no doubt that the oil consuming countries industrialized as well as developing ones have the ability to cut their dependence on oil particularly when it becomes clear that the price rise is due to deliberate action by the producing countries and that may affect negatively their economies. They can adopt policies that will lead to the reduction of their oil consumption particularly at the medium and long terms, and this, for its part, will affect the income and situation of the main oil producing countries. The effective policies taken by consuming countries, particularly in the previous oil rise periods, such as hiking tax on oil products and encouragement of the use of other alternatives and enhancing efficiency of the use of oil and energy. Those policies proved successful not only in reducing oil consumption but also slashing oil demand. The same thing is applicable to several other industrialized consuming countries .As the government implemented the policy to decrease the oil imports the people of Holland have adopted eco friendly methods like use of cycle instead of vehicles.

LAND &GOLD PRICE:

Traditional theory implies that the relative price of consumer goods and of such real assets as land and gold should not be permanently affected by the rate of inflation. A change in the general rate of inflation should, in equilibrium, cause an equal change in the rate of inflation for each asset price The experience of the past decade has been very different from the predictions of this theory: the prices of land, gold, and other such stores of value have increased by substantially more than the general price level More specifically, in an economy with an income tax, an increase in the expected rate of inflation causes an immediate increase in the relative price of such 'store of value' real assets. The behaviour of real asset prices discussed is thus a further example of the non-neutral response of capital markets to inflation in an economy with income taxes.

CONTROLLING INFLATION:
Temporary controls may complement a recession as a way to fight inflation: the controls make the recession more efficient as a way to fight inflation (reducing the need to increase unemployment), while the recession prevents the kinds of distortions that controls cause when demand is high. However, in general the advice of economists is not to impose price controls but to liberalize prices by assuming that the economy will adjust and abandon unprofitable economic activity. The lower activity will place fewer demands on whatever commodities were driving inflation, whether labour or resources, and inflation will fall with total economic output. This often produces a severe recession, as productive capacity is reallocated and is thus often very unpopular with the people whose livelihoods are destroyed.

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