Inflation is basically the general increase in the price level of commodities which sustains for a longer period of time. If prices of a single commodity increase, we can’t say it is inflation but it should be on a broad level i.e. price rise should be reflected in almost every commodity. The various types of inflation are classified and explained below:
Other Varients of Inflation
The various other terms linked to inflation like Bottleneck inflation, core inflation, stagflation, reflation are discussed here one by one:
a). Bottleneck Inflation
Another name for this is structural inflation, as this takes places when the supply falls drastically while the demand remains at the same level. Then due to that supply-demand mismatch inflation occurs. There could be various reasons for the reduction in supply like non-availability of the working capital, less labour, inefficient management and many more.
b). Core inflation
When inflation is measured after excluding the food articles and energy, then it is called core inflation. It is popular in the western world while it was first time used in India in 2000-01 when the government expressed inflation is under control. But in developing countries like us, food and energy are not easily available to everyone in need, so these could not be left out while measuring inflation.
When price rise takes place in some selected commodities like onion, tomato etc but not at the broad level, then it is called skewflation.
When the situation of inflation is deliberately brought by the government to increase employment and boost demand in the economy, then it is called reflation. To do that the government goes for higher public expenditure, tax cuts and the decrease in interest rates. Why will the government do that deliberately? This all is basically done when there is a recession in the economy and economy approaches towards depression, then to avoid this depression government goes for reflation.
Inflation targeting in India
It is the Reserve Bank of India (RBI) which is tasked to control the inflation through its bimonthly monetary policy. India started inflation targeting formally in February 2015 when an agreement was signed between the Government of India and RBI regarding it. As per this agreement, a healthy range of inflation decided for India is 2 to 6 per cent with 4 per cent as the central point. This range will be decided after every five years. These days all the developed countries have inflation targeting monetary policy in place, New Zealand was the first among them which went for inflation targeting in 1989 for the first time in the world.