Meaning :-

Inflation means a considerable and persistent rise in the general price level over a period of time. Economists define inflation in terms of a continuous rise in prices. Johnson defines inflation as a sustained rise in prices.

Broman defines it as "A continuing increase in general price level" .Shapiro also defines inflation in a similar vein.

Dernberg and McDougall are more explicit when they write that "The term usually refers to a continuing rise in prices as measured by an index such as the consumer price index or by the implicit price deflation for GNP"

However a sustained rise in prices may be of various magnitudes : -

1) Creeping inflation

2)Walking inflation

3)Running inflation

4)Hyperinflation.

Causes of inflation : -

1) Factors affecting Demand 2) Factors affecting supple

1) Factors affecting Demand :-

A) Increase in money supple:-

Inflation is caused by an increase in the supply of money which leads to increase in aggregate demand, The higher the growth rate of the nominal money supply, higher the rate of inflation.

B) Increase in Public Expenditure :-

Government activities have been expanding much with the result that government expenditure has also been increasing at an phenomenal rate, there raising aggregate demand for goods and services.

C) Increase in consumer spending :-

The demand for goods and services increases when the consumer expenditure rises.

D) Cheap monetary policy :-

Cheap monetary policy leads to increase in the money supple which raises demand for goods and services in the economy.

E) Deficit financing :-

In order to meet its mounting expenses, the government resorts to deficit financing by borrowing from the public and even by printing more notes.

F) Increase in exports : -

When the demand for domestically produced goods increases in foreign countries this raises the earning of industries producing export commodities

2) Factors affecting supply

A) Shortage of factors of production

B) Industrial disputes

C) Natural calamities

D) Artificial scarcities

E)Increase in Exports

F)International Factors

Effects of Inflation : -

1) Effects on redistribution of wealth : -

There are two ways to measure the effects of inflation on the redistribution of income and wealth in a society. First on the basis of the change in real value of such factor incomes as wages, salaries, rents. Second, on the basis of size distribution of income over time as a result of inflation.

A) Debtors and Creditors:-

During period of rising prices, debtors gain and creditors lose. When prices rise, value of money falls, though debtors return the same amount of money m they pay less in terms of goods and services.

B) Salaried Persons : -

Salaried workers like clerks, teachers and other white collar persons lose when there is inflation. Salary is slow to adapt to rising prices.

C) Wage earners : -

Wage earners may gain or lose depending upon the speed with which they wages adapt to rising prices. If their unions are strong, they may get their wages linked to the cost of living index.

2) Effects on Production :-

When prices start rising production is encouraged, Producers earn wind-fall profits in the future, They invest more in anticipation of higher profits in future, This tends to increase employment production and income. This tends to increase employment level. Further increase in investment beyond this level will lead to sever inflationary pressures within the economy because prices rise more than production as the resources are fully employed.

3) Other Effects : -

1) Government :-

Inflation affects the government in various ways, It helps the government in financing its activities through inflationary finance. As the money incomes of people increase, government collects that in form of taxes on incomes and commodities.

2) Balance of payments :-

Inflation involves the sacrificing of the advantages of international specialization and division of labor. It affects adversely the balance of payments of a country, When prices rise more rapidly in the home country, domestic products become costlier compared to foreign products.

3) Political : -

Rising prices also encourage agitations and protests by political parties opposed to the government, And if they gather momentum and become unhandy, they may bring the downfall of the government.