Introduction:

Inflation is a global phenomena. It occurs in every type of economy. Inflation is a situation with rising prices which causes a decline in the purchasing power of money. Inflation is a price rise which is unseen and uncorrected situation. It occurs in both time war as well as in peace time. Inflation means, the generally 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. The causes of inflation are depend upon its nature.

When inflation occurs, each unit of currency buys few goods and services. It is measured as a percentage increase in the Consumer Price Index (CPI) or the Producer Price Index (PPI), which track the average change in prices of a basket of goods and services consumed by households or produced by businesses, respectively.

Harry Johnson, defines inflation as a sustained rise in prices.

Crowther, defines inflation as a state in which the value of money is falling, prices are rising.

CAUSES OF INFLATION.

1. Increase in supply of Money: Inflation can produce only by a more rapid increase in the quantity of money than in output. Supply of money beyond the requirements is one of the cause of inflation. when supply of money increases price increases. the supply of money increases because of increase in the quantity of currency notes issued by Reserve Bank of India.
2. Because of War: Inflation occurs even because of wars. During wars the needs of military people met first and than the needs of civilians. So supply of goods reduces causes rise in prices.
3. Expansion of Bank Credit: Rapid expansion of the bank credit because of the volume of of currency issued by the central bank is also responsible for Inflation.
4. Excessive expenditure of the Govt: When the govt. of a country spends more amount of money on the projects there will be increase in the income of the people which is responsible for too much demand for the goods without increase in the supply of the goods. thus the price of goods will rises causes inflation.
5. Taxes: Taxes are also responsible for inflation. For example taxes like excise duties or indirect tax will result in rise in prices brings inflation.
6. Rapid population growth: There will be rising demand for goods because of rapid growth of population which cause the shortage of goods results in the rise of prices of goods. Undoubtedly there will be high rise in price in an over populated country.
7. Black money: Black money in the hands of tax evaders and black marketers as an the source of inflation in a country. Black money encourages lavish spending which causes huge demand for the goods and rises the prices.
8. High prices of imports: Inflation is also because of imports of a country. Prices of import goods like petroleum prices have been increased due to price hikes by oil purchasing countries.
9. Speculation and Hoarding: Hoarding and speculation activities on the other hand corruption at every level in both the sectors of the economy are also responsible for inflation in the country.
10. Natural calamities: Difference in monsoon ,bad weather conditions, droughts and failure of agricultural crops have been responsible for price fluctuations from time to time which is also responsible for inflation.
11. Devaluation of currency: When ever the currency of a country is devalued, encouragement of exports and discouragement of imports results in the supply of goods in the country reduces causes inflation.
12. Deficit Financing: Whenever the govt. adopts deficit financing policy results in printing of more currency results in increase in money supply and causes inflation.

also read: explain the effects of inflation on distribution.