Inflation is the main disease for the economy

The gradual decline in purchasing power of money is the meaning of inflation. Inflation is a condition in which too many currencies are issued. There aure two types of inflation they are money inflation and price inflation separately. Money inflation is the first stage of inflation in which the excess over business requirements pushes up the money requirement. The price inflation is the second stage of inflation when the rising inflation necessitates repaid supply of money. Under price inflation is the prices rises so rapidly that even the money supply cannot keep peach with them.

Demand pull inflation

It is caused by an increase in the aggregate effective demand for goods and services in the economy. The demand inflation is marked by a considerable rise in commodity price and factor prices in the economy. In the post war period this type of inflation was experienced for long period.

Cost-Push Inflation

Due to the increase in production cost, this type of inflation is caused. Mainly to factors increases in wages and increase in the profit margin of the entrepreneur causes this inflation. Cost push inflation is normally caused either by an organized attempt or the part of the industrialists to push up their profit margins or attempt by the powerful trade union to push up wages becomes the prominent cause for cost push inflation. 

There are three measures of controlling inflation are monetary measures, fiscal measures and other measures. In monetary measures the bank rates are increased to discourage borrowing from banks, government securities are sold in the open market by the central bank and the SLR and CRR are increased to absorb liquidity. Higher margin requirements are imposed to lower the volume of loan the borrowers can obtain from the banks.

In fiscal measures the government expenditure is curtailed; tax is increased to reduce the dispensable income of the general public. Debt management by way of repurchasing the government securities is done to reduce money supply and prevent further credit expansion. Domestic currency is revalued in terms of foreign currency which will decrease export and encourage imports consequently increasing the availability of goods in the domestic market and by adopting suitable income policy which controls, salaries and profits to keep public spending to a low level. Other measures are to increase output, control wages and price etc.