KCT BUSINESS SCHOOL

MANAGERIAL ECONOMICS
MASTERS OF BUSINESS ADMINISTRATION
TOPIC- INFLATION

TEAM- 01 MBA (PM)

TEAM MEMBERS:

1. ARUNA VV -23MPM001
2. JAISREE S -23MPM009
3. JAY RAGAVENDAR -23MPM010
4. KALAI AMUDHAN K -23MPM011
5. MAHENDRA PRASANTH M -23MPM013
6. SANGAVI R -23MPM020
7. SHOBIKA R -23MPM024
8. THAARANI S -23MPM028
9. VARSHA S -23MPM029
10. VISURUTHI P -23MPM031

SUBMITTED TO – DR. SANGEETHA

 INFLATION
Introduction
Inflation refers to the sustained increase in the general price level of goods and
services over time. This means that your money buys less over time, as the cost
of living rises. Inflation is measured by the Consumer Price Index (CPI), which
tracks the average price of a basket of goods and services commonly purchased
by households.

INDIA

Inflation is a major concern for any economy. This presentation will review the
inflation trends in India over the last five years. We will analyse the factors that
have contributed to the rise or fall of inflation and its impact on the Indian
economy.
Causes for inflation
• Demand-Pull Inflation:

1. Increased Consumer Spending: When consumers have more

money to spend, it can drive up demand for goods and services,
leading to higher prices.
2. Government Spending: Government expenditure, especially on
infrastructure and social programs, can boost demand in the
economy.
3. Monetary Policy: If the central bank (Reserve Bank of India)
pursues expansionary monetary policies, such as lowering interest
rates or increasing the money supply, it can stimulate demand and
potentially lead to inflation.

• Cost-Push Inflation:

1. Rising Production Costs: Increases in the cost of production, such

as higher wages, energy prices, or raw material costs, can lead to
cost-push inflation as businesses pass these higher costs onto
consumers.

2. Supply Chain Disruptions: Disruptions in the supply chain,

whether due to natural disasters, transportation issues, or global
events, can reduce the supply of goods and driveup prices.

3. Imported Inflation: India is a net importer of oil, so fluctuations in

global oil prices can have a significant impact on domestic inflation.

• Agricultural Factors: India's economy is still heavily dependent on

agriculture, and factors like droughts, floods, or poor crop yields can lead
to food price inflation, which has a significant impact on overall inflation.

• Taxation and Tariffs: Changes in tax rates and tariffs can influence the
prices of goods and services, contributing to inflation.

• Exchange Rate Movements: Fluctuations in the exchange rate, especially

a depreciating rupee, can increase the cost of imported goods and fuel
inflation.
 • Inflation Expectations: If people and businesses expect prices to rise in
the future, they may adjust their behaviour accordingly, demanding higher
wages and increasing prices, which can contribute to inflation.

INCREASE AND DECREASE IN INDIA’S GDP

India's GDP fluctuations over the past decade were influenced by various
factors, including government policies and central bank actions. During periods
of GDP growth, factors like increased consumer spending, infrastructure
development, and favourable global economic conditions played a role.

Government Policies:
Reforms: Implementation of economic reforms, such as the Goods and Services
Tax (GST) and demonetization, impacted economic activity.
Infrastructure Investments: Government initiatives like "Make in India" and
infrastructure projects contributed to GDP growth.
Central Bank Actions:
Monetary Policy: The Reserve Bank of India (RBI) adjusted interest rates and
liquidity measures to control inflation and stimulate economic activity.
Currency Management: Interventions in the foreign exchange market to manage
the exchange rate and trade balance.
Global Economic Conditions:
Exports and Imports: Changes in global demand affected India's exports,
impacting GDP growth.
Global Financial Crisis: The 2008 global financial crisis had ripple effects on
India's economy.
Challenges Leading to Dips in GDP:
Demonetization (2016): Temporary disruption due to the sudden withdrawal of
high-denomination currency notes.
Pandemic (2020): The COVID-19 pandemic led to a significant economic
contraction globally, affecting India as well.
Strategic Actions during Downturns:
Fiscal Stimulus: The government implemented fiscal stimulus measures to
boost demand during economic downturns.
Interest Rate Adjustments: The RBI adopted accommodative monetary policies,
reducing interest rates to encourage borrowing and spending.
Analyzing specific years within the mentioned period would provide more
detailed insights into the strategic actions taken by the government and central
bank to address economic challenges and spur growth.

GOVERNMENT ACTIONS:
1.Demographic Dividend: India's large and young population has contributed to
a growing labour force, fostering economic productivity.
2. Economic Reforms: Initiatives like the Goods and Services Tax (GST) and
the Insolvency and Bankruptcy Code (IBC) aimed at simplifying taxation and
improving the business environment.
3. Infrastructure Development: Investments in infrastructure projects, including
roads, railways, and smart cities, have stimulated economic growth.
4. Foreign Direct Investment (FDI): Policies encouraging FDI have attracted
international capital, boosting various sectors of the economy.
5. Technology and Innovation: Growth in the IT and technology sectors has
played a significant role in India's economic expansion.
6. Policy Changes: Certain policy decisions, such as demonetization in 2016,
have had short-term disruptive effects on the economy.
7. Inflation and Monetary Policy: Fluctuations in inflation rates and changes in
monetary policy can affect consumer spending and investment.
8. Pandemic Impact: The COVID-19 pandemic in
2020 led to a significant economic contraction globally, affecting various
sectors in India.
Understanding the interplay of these factors provides a nuanced view of India's
GDP trends over the past decade.
Causes for inflation
• Monetary Policy: The central bank's monetary policy can influence
inflation. If the central bank increases the money supply excessively or
keeps interest rates too low for an extended period, it can lead to demand-
pull inflation.
• Exchange Rate Fluctuations: Changes in the exchange rate can impact
inflation, particularly in countries that rely on imports. A depreciating local
currency can make imported goods more expensive, contributing to
inflation.
• Fiscal Policy: Government spending and fiscal deficits can affect inflation.
If the government runs large budget deficits and relies on borrowing or
printing money to finance them, it can create inflationary pressures.
• Energy Prices: The cost of energy, particularly fuel and electricity, can
have a significant impact on inflation. Subsidy reforms or global
fluctuations in oil prices can influence energy costs for consumers and
businesses.
• Food Prices: Egypt is vulnerable to food price inflation due to its reliance
on food imports. Fluctuations in global food prices or domestic supply
disruptions can affect the cost of living.
 • Subsidy Reductions: The government's efforts to reduce subsidies on
essential goods, such as food and fuel, can lead to price increases for
consumers, contributing to inflation.
• Structural Issues: Long-term structural issues in the Egyptian economy,
such as unemployment, underemployment, and inefficient sectors, can
contribute to inflation if not addressed.
• Global Economic Factors: Global economic conditions, including
changes in international trade, can impact Egypt's economy and contribute
to inflation.

Venezuela

Venezuela is in the midst of a severe economic crisis, which has led to

hyperinflation. The country's own currency is becoming increasingly unimportant
and many transactions are now conducted in US dollars. President Nicolás
Maduro created the legal basis for this in the course of a currency reform in 2019.
Causes for inflation
• Economic Mismanagement: Venezuela's economic troubles were largely
attributed to poor economic policies, including price controls,
nationalizations, and fiscal deficits. The government printed excessive
amounts of money to finance its budget deficit, leading to a rapid increase
in the money supply and devaluation of the currency.
• Decline in Oil Prices: Venezuela is heavily dependent on oil exports for
its revenue. The sharp drop in global oil prices in 2014-2016 severely
impacted the country's income, as oil accounts for a significant portion of
its export earnings. This loss of revenue exacerbated fiscal deficits and
contributed to inflation.
• Currency Devaluation: Venezuela's official exchange rate system became
highly distorted, with multiple exchange rates and a significant gap
between the official rate and the black-market rate. The devaluation of the
official currency, the bolivar, led to price disparities and encouraged a
thriving black market for foreign currency.
• Economic Sanctions: International sanctions, imposed by various
countries and organizations, further strained Venezuela's economy. These
sanctions targeted key individuals, entities, and the country's oil sector,
limiting its ability to access global financial markets and export oil.
• Collapse of Production: Mismanagement, expropriations, and a
deteriorating business environment caused a sharp decline in domestic
production, including agriculture and manufacturing. This led to shortages
of essential goods, which, coupled with the currency devaluation, fuelled
inflation.
• Corruption and Political Instability: Widespread corruption and political
instability hindered effective economic management and deterred foreign
investment. Lack of transparency and accountability exacerbated the
economic crisis.
• Loss of Confidence: High inflation eroded confidence in the national
currency and the government's ability to stabilize the economy. Many
Venezuelans turned to foreign currencies or alternative assets, such as
cryptocurrencies, to protect their savings.
• Informal Economy: A significant portion of economic activity in
Venezuela shifted to the informal sector, where prices were often
denominated in U.S. dollars or other foreign currencies. This further
undermined the official exchange rate system.
 • Humanitarian Crisis: The economic collapse resulted in severe shortages
of food, medicine, and basic necessities, contributing to a humanitarian
crisis. People struggled to afford basic goods, and the government's
response, including price controls, often worsened the situation.

Inflation as measured by the consumer price index reflects the annual percentage
change in the cost to the average consumer of acquiring a basket of goods and
services that may be fixed or changed at specified intervals, such as yearly. The
Laspeyres formula is generally used.

• Venezuela inflation rate for 2016 was 254.95%, a 133.21% increase from
2015.
• Venezuela inflation rate for 2015 was 121.74%, a 59.57% increase from
2014.
• Venezuela inflation rate for 2014 was 62.17%, a 21.53% increase from
2013.
• Venezuela inflation rate for 2013 was 40.64%, a 19.57% increase from
2012.
EGYPT

The inflation rate for consumer prices in Egypt moved over the past 62 years
between -3.0% and 29.5%. For 2022, an inflation rate of 13.9% was calculated.
During the observation period from 1960 to 2022, the average inflation rate was
9.8% per year. Overall, the price increase was 30,052.87%. An item that cost 100
pounds in 1960 costs 30,152.87 pounds at the beginning of 2023.

INCREASE AND DECREASE IN INDIA’S GDP

India's GDP fluctuations over the past decade were influenced by various
factors, including government policies and central bank actions. During periods
of GDP growth, factors like increased consumer spending, infrastructure
development, and favourable global economic conditions played a role.

Government Policies:
Reforms: Implementation of economic reforms, such as the Goods and Services
Tax (GST) and demonetization, impacted economic activity.
Infrastructure Investments: Government initiatives like "Make in India" and
infrastructure projects contributed to GDP growth.
Central Bank Actions:
Monetary Policy: The Reserve Bank of India (RBI) adjusted interest rates and
liquidity measures to control inflation and stimulate economic activity.
Currency Management: Interventions in the foreign exchange market to manage
the exchange rate and trade balance.
Global Economic Conditions:
Exports and Imports: Changes in global demand affected India's exports,
impacting GDP growth.
Global Financial Crisis: The 2008 global financial crisis had ripple effects on
India's economy.
Challenges Leading to Dips in GDP:
Demonetization (2016): Temporary disruption due to the sudden withdrawal of
high-denomination currency notes.
Pandemic (2020): The COVID-19 pandemic led to a significant economic
contraction globally, affecting India as well.
Strategic Actions during Downturns:
Fiscal Stimulus: The government implemented fiscal stimulus measures to
boost demand during economic downturns.
Interest Rate Adjustments: The RBI adopted accommodative monetary policies,
reducing interest rates to encourage borrowing and spending.
Analysing specific years within the mentioned period would provide more
detailed insights into the strategic actions taken by the government and central
bank to address economic challenges and spur growth.

GOVERNMENT ACTIONS:

1.Demographic Dividend: India's large and young population has contributed to

a growing labour force, fostering economic productivity.
2. Economic Reforms: Initiatives like the Goods and Services Tax (GST) and
the Insolvency and Bankruptcy Code (IBC) aimed at simplifying taxation and
improving the business environment.
3. Infrastructure Development: Investments in infrastructure projects, including
roads, railways, and smart cities, have stimulated economic growth.
4. Foreign Direct Investment (FDI): Policies encouraging FDI have attracted
international capital, boosting various sectors of the economy.
5. Technology and Innovation: Growth in the IT and technology sectors has
played a significant role in India's economic expansion.
6. Policy Changes: Certain policy decisions, such as demonetization in 2016,
have had short-term disruptive effects on the economy.
7. Inflation and Monetary Policy: Fluctuations in inflation rates and changes in
monetary policy can affect consumer spending and investment.
8. Pandemic Impact: The COVID-19 pandemic in
2020 led to a significant economic contraction globally, affecting various
sectors in India.
Understanding the interplay of these factors provides a nuanced view of India's
GDP trends over the past decade.

Causes for inflation

• Monetary Policy: The central bank's monetary policy can influence

inflation. If the central bank increases the money supply excessively or
keeps interest rates too low for an extended period, it can lead to demand-
pull inflation.
• Exchange Rate Fluctuations: Changes in the exchange rate can impact
inflation, particularly in countries that rely on imports. A depreciating local
currency can make imported goods more expensive, contributing to
inflation.
• Fiscal Policy: Government spending and fiscal deficits can affect inflation.
If the government runs large budget deficits and relies on borrowing or
printing money to finance them, it can create inflationary pressures.
• Energy Prices: The cost of energy, particularly fuel and electricity, can
have a significant impact on inflation. Subsidy reforms or global
fluctuations in oil prices can influence energy costs for consumers and
businesses.
• Food Prices: Egypt is vulnerable to food price inflation due to its reliance
on food imports. Fluctuations in global food prices or domestic supply
disruptions can affect the cost of living.
• Subsidy Reductions: The government's efforts to reduce subsidies on
essential goods, such as food and fuel, can lead to price increases for
consumers, contributing to inflation.
• Structural Issues: Long-term structural issues in the Egyptian economy,
such as unemployment, underemployment, and inefficient sectors, can
contribute to inflation if not addressed.
• Global Economic Factors: Global economic conditions, including
changes in international trade, can impact Egypt's economy and contribute
to inflation.