In this article I will be writing about the Inflation and how it will affect the prices. Many people have the wrong conception about the inflation and prices relationship. This article will point out what is inflation and what is the relationship with price changes. It is one of the important concept everyone must know in the daily life. After reading this article post your feedback on the comments section. I would like to response to all your feedback. You can subscribe to our future articles here.
What is Inflation?
Inflation is term used for describing the percentage of increase in the price levels. It can be calculated in weekly, monthly or annually. Normally it is represented in the annualized figure. Inflation is calculated based on the Wholesale Price Index(WPI) in India. Many countries finding the inflation using the Consumer Price Index(CPI).
As their names suggest, the CPI pertains to a set of items that a consumer consumes while the WPI is a basket particular to the wholesale market. Therefore, if the inflation for a particular week is, say, 10 per cent, it means the index is 10 per cent higher than it was the same week the previous year. Then there is core-inflation, which means the inflation rate without taking into account food and fuel. Some say both need to be taken out because of their volatility, while some argue that both items cannot be taken out because a consumer does pay for the rise in their prices.
How to calculate Inflation Rate?
The following is the formula used for calculating the inflation rate:
Inflation Rate = (Po- P-1)* 100 / P-1,
where
Po = the present average price
P-1 = the price that existed last year.
Inflation rate is always presented in the percentage.
Summary
In this article I have explained the very basic details about the inflation and how it is calculated. I hope it provides some light on your mind. When some one talking about the inflation, you will understand the meaning of it. In future articles I will be writing about the different types of inflation. It is such a big topic, cannot be covered within single blog post. Keep reading this site to get latest news on financial subject. Thank you for reading this article.
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May 27, 2012 at 2:30 am
hi,
This Article points out about basic factors of Inflation.But it can not explain what happens when inflation comes?what is the relationship with Currency value?It can not be explained in simple way.
May 31, 2012 at 1:32 am
A country with a consistently lower inflation rate exhibits a rising currency value, as its purchasing power increases relative to other currencies.
June 29, 2012 at 5:09 am
If a country does more trading outside the country than its earnings inside the country, then, why is that the country needs to buy more foreign currency to fulfill its need inside the country..??? please explain clearly..
June 29, 2012 at 10:36 am
Hello Gireesh,
Please read the reply given below whether it answers your questions.
Thanks,
Krishna
June 29, 2012 at 5:16 am
“A currency will tend to become more valuable when its demand is higher than supply. A currency will tend to become less valuable when its demand is less than supply.” Explain the above statement clearly, (if possible) with an example..
June 29, 2012 at 8:42 am
Hello Boby,
Take an Example, If Indian market is too good, then foreign investors want to invest in the Indian market. How they will do that, they have to sell their currency and convert into INR and put it into Indian market. In the above case, investors bought the INR, so there is more demand for the INR. In the same way when market is bad.
Hope this clears your doubts.
Thanks,
Krishna
July 19, 2012 at 4:00 pm
Hello krishna,
your clarification for my doubt is incredible.. Thanks for the answer..
July 19, 2012 at 7:34 pm
Hello Boby,
Thank you for reading my blog.
Thanks,
Krishna
June 11, 2013 at 6:18 pm
Hi Krishna
If rupees value is decreesing against dollar than
Is it compulsory that rupees value dicresing against other currency too ?
July 6, 2012 at 3:53 am
Hi, i have few questions as below….
1.who(which body) decide the rupees value vs dollor on real time basis ?. is there any centalised data base which helps in calculating rupees value on daily basis ? & at what time(schedule) rupees value is calculated on daily basis.
2. What is the reason for raise in the price of gold ?.
i am waiting to hear answer soon.
Regards
Naresh
July 6, 2012 at 4:18 am
Hello Naresh jaiswal,
1. Rupee value will be calculated by the fores exchanges. They maintain the value of all the currencies.
2. The simple answer is more investment on gold makes more demand. So, the price is increased. Most of the time when the dollar value is low, gold price is increased. Read the below articles to know more about gold prices:
http://www.thinkplaninvest.com/2011/08/a-look-out-on-gold-as-investment/
http://www.thinkplaninvest.com/2009/11/india-bought-200-metric-tons-of-gold-from-imf/
Thanks,
Krishna