Meaning of Inflation.

Inflation is a global phenomena. It occurs in every type of economy. Inflation is a condition with increasing prices which causes a decrease in the purchasing power of money. Inflation is a price rise which is unseen and uncorrected situation. So measures to control inflation is mandatory for every economy

It occurs in both time war as well as in peace time. Inflation refers to the general increase in prices of goods and services in an economy over a period of time, leading to a decrease in the purchasing power of money.

Measures to control inflation are classified in to 3 categories.

1. Monetary measures.
2. Fiscal measures.
3. Other measures.

1.Monetary measures:

a. Control of Credit: The central bank adopt both quantitative and qualitative credit control methods . It can adopt quantitative methods to control inflation by adopting raising the bank rate , raising in cash reserve ratio etc. It also can adopt qualitative method like raising the margin requirement to control the flow of money in the economy. This measure is effective in controlling inflation.

b. Open Market Operations: Here the Central banks can buy or sell government securities in the open market to control the money supply. Buying securities creates flow of money into the economy, while selling securities will restrict the supply of money. By performing these operations, central banks can influence interest rates and control inflation.

c. Reserve Requirements: Central banks mandate commercial banks to hold a certain percentage of their deposits as reserves. By increasing reserve requirements, central banks reduce the amount of money with the banks to control banks lending, thereby curbing excess liquidity in the economy and controlling inflation.

d. Demonetization of currency: Demonetization of currency is also effective measures to control inflation where there is huge abundance of black money.

e.. Issue of new currency: This is also one of the measures to control inflation. Here one new currency is exchanged for a number of old currencies.

2. Fiscal measures.

a. Decrease in govt. expenditure: Decrease in unnecessary expenditure of the govt on unproductive activities can be a effective measure to control inflation. Curtailing govt. expenditure is also most effective method to deal with inflation problem.

b. Increasing Taxes: Raising the percentage in tax and introduction of new types of taxes can reduce disposable income and consumer spending, thereby reducing demand and controlling inflation. Taxes on consumption, such as sales taxes or value-added taxes (VAT), CGST and SGST can be particularly effective in curbing inflationary pressures on the economy.

c. Surplus Budgets: Maintaining a balanced budget or running a budget surplus during periods of high inflation can help prevent the government from inflationary pressures by inducing additional demand into the economy through deficit spending. However, achieving fiscal balance may be challenging during economic downturns when tax revenues decline and social welfare spending increases.

d. Public Debt Management: Governments can implement proper debt management policies to avoid excessive borrowing, which can fuel inflationary pressures by increasing demand for funds in financial markets. Govt. must stop repayment of public debt or postpone repayment to some future date until inflationary pressure are controlled. By managing public debt responsibly, governments can help maintain stability in financial markets and mitigate inflation risks.

e. Price Controls: When ever the fiscal measure will no be strictly followed, governments may resort to price controls to directly limit the increase in prices of essential goods and services during periods of high inflation. However, price controls can have unintended consequences, such as distortions in supply and distribution chains, and may not address underlying inflationary pressures effectively.

Other Measures.

1. Rational wage policy
2. Price control
3. Proper projects.
4. Increase in imports
5. Increase in output

also read: explain the uses of index numbers.