Inflation: Types, Causes and Effects Notes for SSC Exams
Rahul Kumar
SSC Exam Expert & Content Editor
In this note
- 1.What Is Inflation?
- 2.Types of Inflation by Cause
- 3.Types of Inflation by Speed
- 4.Related Terms
- 5.Price Indices: CPI and WPI
- 6.Effects of Inflation
- 7.Control of Inflation
- 8.Quick Tips
- 9.Quick Revision Points
- 10.Practice Questions With Answers
- 11.How to Practise This Chapter
- 12.Frequently Asked Questions
PDF Notes: Inflation: Types, Causes and Effects Notes for SSC Exams
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Inflation means a continuous rise in the general price level of goods and services over time. It is a favourite topic of economics in SSC exams, and questions are asked on the types, the causes, the price indices and the control measures. These inflation notes for SSC explain every point in simple language with tables, examples and practice questions.
What Is Inflation?
- Inflation is a sustained rise in the general level of prices, and it reduces the purchasing power of money.
- The inflation rate is the percentage change in a price index over a year.
- Inflation rate = [(Price index this year − Price index last year) / Price index last year] × 100.
Example. If the price index rises from 150 to 159 in one year, the inflation rate is (159 − 150) / 150 × 100 = 6 per cent.
Types of Inflation by Cause
| Type | Cause | Example |
|---|---|---|
| Demand-pull inflation | Total demand is more than the supply of goods | Too much money in the hands of people |
| Cost-push inflation | Cost of production rises, such as wages and raw material | Oil price rise |
| Built-in inflation | Workers demand higher wages because prices rise, which raises prices again | Wage-price spiral |
| Imported inflation | Prices of imported goods rise | Rise in crude oil price |
Types of Inflation by Speed
| Type | Rate of price rise |
|---|---|
| Creeping inflation | Very slow, up to about 3 per cent a year |
| Walking inflation | Moderate, about 3 to 10 per cent a year |
| Running inflation | Fast, about 10 to 20 per cent a year |
| Galloping inflation | Very fast, above 20 per cent a year |
| Hyperinflation | Extremely fast and out of control, prices rise by a huge percentage every month |
Related Terms
| Term | Meaning |
|---|---|
| Deflation | A continuous fall in the general price level |
| Disinflation | A fall in the rate of inflation, but prices still rise |
| Reflation | Efforts to raise prices after deflation |
| Stagflation | Inflation together with slow growth and high unemployment |
| Skewflation | Prices of some items rise much faster than others |
Price Indices: CPI and WPI
| Index | Measures | Used for |
|---|---|---|
| Consumer Price Index (CPI) | Retail prices paid by consumers | Main measure of inflation in India and used by the RBI |
| Wholesale Price Index (WPI) | Prices at the wholesale level | Shows the price trend of goods at the producer level |
- India follows a flexible inflation target of 4 per cent with a tolerance band of 2 to 6 per cent, based on CPI.
- The Monetary Policy Committee (MPC) of the RBI decides the repo rate to keep inflation in the band.
Effects of Inflation
| Group | Effect |
|---|---|
| Fixed income earners and savers | Lose, because money buys less |
| Borrowers | Gain, because they repay with money of lower value |
| Lenders | Lose in real terms |
| Producers and traders | Often gain if prices rise faster than costs |
| Exports | Become costly and less competitive |
Control of Inflation
- Monetary measures: the RBI raises the repo rate, the Cash Reserve Ratio (CRR) or the Statutory Liquidity Ratio (SLR) to reduce the money supply.
- Fiscal measures: the government reduces its spending and increases taxes to reduce demand.
- Supply measures: increase production, import goods in short supply and improve storage and transport.
Quick Tips
- Learn the types of inflation by cause and by speed in two separate tables.
- Remember that demand-pull is "too much money chasing too few goods".
- Do not mix disinflation (slower price rise) with deflation (fall in prices).
- Revise the current inflation target and the role of the MPC in the Indian economy.
Quick Revision Points
- Inflation means a continuous rise in the general price level.
- Demand-pull and cost-push are the two main causes.
- CPI is the main inflation measure in India.
- Stagflation is inflation with slow growth.
- India's inflation target is 4 per cent with a band of 2 to 6 per cent.
Practice Questions With Answers
- What is inflation?
Answer: A continuous rise in the general price level - Which type of inflation is caused by excess demand?
Answer: Demand-pull inflation - Which inflation is caused by a rise in the cost of production?
Answer: Cost-push inflation - Which index is mainly used to measure inflation in India?
Answer: Consumer Price Index (CPI) - What is a continuous fall in the general price level called?
Answer: Deflation - What is the combination of inflation and slow growth called?
Answer: Stagflation - The price index rises from 200 to 212 in a year. Find the inflation rate.
Answer: 6 per cent - Which body of the RBI decides the repo rate?
Answer: Monetary Policy Committee (MPC) - Who gains in inflation: borrowers or lenders?
Answer: Borrowers - Which tool does the RBI raise to reduce the money supply?
Answer: Repo rate (or CRR)
How to Practise This Chapter
Make two tables, one for the types and one for the effects, and revise them weekly. Then solve questions from our practice papers, the free SSC quizzes and the previous year papers page. Read the previous chapter, Accounting Basics, and the related Indian Economy notes for the RBI and the budget. The Finance and Economics notes page has all topics.
Frequently Asked Questions
What is inflation?
Inflation is a continuous rise in the general level of prices, which reduces the buying power of money.
What are the main causes of inflation?
The main causes are higher demand than supply (demand-pull) and a rise in the cost of production (cost-push). Higher money supply is also a cause.
What is demand-pull inflation?
Demand-pull inflation happens when the total demand in the economy is more than the supply, so prices rise.
What is cost-push inflation?
Cost-push inflation happens when the cost of production, such as wages and raw materials, rises and producers increase the prices.
What is stagflation?
Stagflation is a situation of high inflation together with slow economic growth and high unemployment.
What is the difference between deflation and disinflation?
Deflation is a fall in the price level. Disinflation is a fall in the rate of inflation, where prices still rise but more slowly.
What are CPI and WPI?
CPI measures the change in retail prices paid by consumers. WPI measures the change in prices at the wholesale level.
What is the inflation target in India?
India has a flexible inflation target of 4 per cent with a band of 2 to 6 per cent, measured by the CPI.
Who gains and who loses in inflation?
Borrowers and producers often gain, while savers, lenders and fixed income earners lose.
How can inflation be controlled?
By monetary measures such as raising the repo rate and CRR, by fiscal measures such as reducing government spending and by increasing supply.
What is hyperinflation?
Hyperinflation is extremely high inflation, where prices rise very fast every month and money loses value quickly.
How many questions come from inflation in SSC exams?
Usually one or two questions come from inflation and price indices in SSC economics papers, but the number changes from year to year.
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Rahul Kumar
SSC Exam Expert & Content Editor
Rahul is a senior SSC exam strategist with 8+ years of experience helping aspirants crack CGL, CHSL and MTS exams. He writes in-depth notification breakdowns, exam pattern guides and preparation strategies.