Causes of Inflation

Economy     9th December 2023     Save    
Samadhaan

UPSC Prelims Revision Card for Causes of Inflation

Sno.

PARAMETERS

Does Inflation Increase by this Parameter?

Affects Which Side
Demand (D) or Supply (S)

Reasons

1

Increase in Income/ Purchasing Power

Yes

D

More money in hands of people 

2

Increase in Cost of Production/Input

Yes

S

Reduced profits and motivation to supply

3

Increase in Money Supply

Yes

D

More money in hands of people 

4

Increase in Printing of New Money

Yes

D

More money supply, more money in hands of people   

5

Increase in Interest Rate

No

D/S

Demand: Less demand for goods & services  

Supply: Raising Capital becomes expensive

6

Increase in Fiscal Deficit

Yes

D

Expansionary Fiscal Policy -> More money in hands of people 

7

Increase in Public Expenditure/ Expansionary Policy/ Fiscal Stimulus

Yes

D

More money in hands of people 

8

Increase in Loan Waiver

Yes

D

More money in hands of people

9

Increase in MSP

Yes

D/S

Demand: More money in hands of farmers  

Supply: Increase in prices of foodgrains  

10

Monsoon Failure

Yes

S

Impacts crop supply, also affects farmers' income

11

Increase in Indirect Taxes

Yes

S

Items become costly

12

Increase in Direct Taxes

No

D

Reduced Purchasing Powers

13

Increase in Inflation Indexed Wages

Yes

D

More money in hands of people  

14

Increase in Population

Yes

D

Rise in demand 

15

Policy Paralysis

Yes

S

Reduced EoDB & motivation to supply 

16

Increase in Net Exports

Yes

S

Supply Scarcity in Domestic Market

17

Increase in Global Oil Commodity Price

Yes

S

Imported Inflation

18

Currency Depreciation

Yes

S

Imports become expensive -> Imported Inflation

19

FDI/FII Inflow

Uncertain net impact

D/S

Supply: Improves supply

Demand: Improved growth & rising incomes

output themes