LOOKING AT THE PRESENT SITUATION YOU SAY INFLATION IS 7.14. WHERE AS EVERY MALL IS PACKED, CINEMA THEATERS BIG/SMALL ARE FULL. IPL/ICL MATCHES WITH HIGH TICKET RATE ARE FULL. IPL PLAYERS,ADVERTISEMENT MODELS,SHOW CONDUCTING HOSTS INCLUDING FILM STARS ARE PAID IN CRORES. I STILL FAIL TO UNDERSTAND WHAT IS INFLATION. CAN SOME BUDDIJIVI CAN GUIDE US.
RE:WHAT IS INFLATION
by Indian Indian on Apr 23, 2008 08:14 PM Permalink
Inflation is a rise in the general level of prices over time. It may also refer to a rise in the prices of a specific set of goods or services. In either case, it is measured as the percentage rate of change of a price index
RE:WHAT IS INFLATION
by Welcome on Apr 23, 2008 09:16 PM Permalink
Indian, price index is not the same as inflation. Change in price is the effect of inflation but not the cause. Mohandas Pai, keep researching and some day you'll know the answer. BTW, how is Infi. doing?
RE:WHAT IS INFLATION
by Kaushik Das on Apr 24, 2008 06:34 AM Permalink
change in price IS a cause of inflation - which is why it is used to measure inflation.
Inflation is just a hypothetical term to denote change in prices. The price change is still the ACTUAL thing. Inflation is just a term to denote a specific measurement of the price change.
RE:WHAT IS INFLATION
by Indian Indian on Apr 24, 2008 01:53 AM Permalink
No, you didn't get my point, Price index is never same as inflation. what I mean is, inflation will be measured based on % change of Price Index. Whatever you said is correct, Change in price index is never a root cause/cause of inflation. Anyway Mohandas see the below:
In Simple Terms:
What is Inflation: In a simeple term, inflation is nothing but increase in the price of goods and services over a period of time.
How to Measure: To measure how much % of price changed for a particular Good/Service for a particular period of time (lets say 2006-2007), will be known when we consider Price Index of that particualar Good / Service for that particula period of time (2006-2007).
Good or Bad: a small amount of infaltion must be there in any economy to progress. Otherwise, there is a chance of Deflation (which is opposite to inflation, ie decrease in the prices) If we consider one problem with deflation, then you will understand why inflation is required for aconomy, For instance, XYZ co., is manufacturing fans for 100Rs. each and selling it for 105Rs. In deflation, as said, the price is decreased, if the fan price falls by 6Rs. XYZ company has to sell it for 99Rs. ie with loss of Rs.1. So, in a overall effect XYZ company will make losses and will hesitate to continue his business as deflation is there, which is not good for economy. So a small amount of inflation shuold be there. But high inflation is also too dangerous, as you may be experiencing the Fuel/ Food price in indi
RE:RE:WHAT IS INFLATION
by Kaushik Das on Apr 24, 2008 06:45 AM Permalink
the example you give is not correct and is not about deflation.
In fact, deflation may also be good for the economy as the aforementioned XYZ company will have more value for their 99 rupees (eq to 105 rupees present) than their 100 rupees present cost. Since everything else will also be cheaper, XYZ co will be able to buy more for that 99 INR although on paper, they can show losses just because profit/loss calc does not take inflation into consideration and is based on absolute figures.
Too much inflation is not good for the economy as you can see from the real estate sector where we say prices are inflated. This is leading to costs of companies going up and India is well on the way of losing a lot of business as given in this article itself.
A little inflation is good in the sense that when you park your money in the bank, you expect some earning. Similarly, banks would also expect earnings on loans. Otherwise, financial institutions cannot operate. Thus, inflation is good for financial institutions.
However, inflation is very bad for retired people, etc, who have a fixed sum as assets and that fixed sum loses its value each day because what they could get for 100 rupees earlier costs maybe 160 rupees today.
When my father started his career many decades back, he used to earn 140 rupees each month. however, with that 'small' amount, he could buy a lot of things. unfortunately, his salary at the time of retirement was several times more but he struggled to buy the same.
RE:RE:RE:WHAT IS INFLATION
by Kaushik Das on Apr 24, 2008 06:53 AM Permalink
also, consider this: Since my father's initial savings, PF, etc, were calculated based on the 140 rupees scale, there were cases where bonuses were declared many years later to be paid in arrears. However, such bonuses would also be based on the 140 rupees scale and would be a pittance when he received it because by the time he received it, it's value had diminished.
All his savings, insurances, investments in his early career were calcualted based on the 140 rupees scale. Therefore, the returns were 'small'. With low inflation, the returns would have held some value. But due to high inflation, almost all of his savings and investments from early career became a pittance. You can do the calculations. A person 10-20 years junior would also have had similar investment returns / savings because his investments would be based on a few thousand rupees each month while for those 10-20 years of his 'seniority', my father's savings, based on a few 100 rupees, would not yield much.
RE:WHAT IS INFLATION
by Indian Indian on Apr 24, 2008 07:28 AM Permalink
Yeah, inflation, deflation have their own good/bads in the economy and will have poly faces. One can argue as good and/or bad. I agree with you. Coming to my example, i was just trying to give a simple example as Mohan seems to be new to these terms. :)
RE:WHAT IS INFLATION
by Indian Indian on Apr 24, 2008 02:18 AM Permalink
Mohandas, As You are saying "EVERY MALL IS PACKED, CINEMA THEATERS BIG/SMALL ARE FULL. IPL/ICL MATCHES WITH HIGH TICKET RATE ARE FULL. IPL PLAYERS,ADVERTISEMENT MODELS,SHOW CONDUCTING HOSTS INCLUDING FILM STARS ARE PAID IN CRORES." ---> as i mentioned the money supply in india is more (than requried at present) as one of the reaon for inflation. thats why you are able to see so much happenings around you, people are speing money like white papers because money supply is more, and everybody has more money, they are spending it. The finest example of present day's world for high infaltion is Zimbabwe. its present day's inflation is 1,64,900.3%, its highest currency note is 50 000 000$. 1US Dollaer is equal to $7.1 million Zim. dollars now. So if want to buy a candy in zimbabwe walmart (just for example), you needt o carry 7.1million zim dollar notes, :) looks funny isn't it. We have to carry in big lorry :))
