Inflation and Cost-push Factor Essay

Cost-push factor pomposity occurs when there is increase in make up of production of an item, which then gets translated into a higher worth for that item in the market. Demand-pull factor inflation occurs when there is more money with the consumers comp atomic number 18d to the total heel of goods available in the market. With too much money chasing too a couple of(prenominal) goods, prices boost because people are willing to pay more for the analogous item. This type of inflation generally happened when the demand exceeds supply. On the other hand, when prices polish it is known as deflation. However this is more of a theoretical image as developing countries rarely experience deflation.Inflation in indiaA combination of both cost-push and demand-pull factor exist in india. However cost-push factors are more apparent in the post liberalization period. Prices in india fundamentally increase due to an increase in petroleum product prices, to begin with because petroleum is vital input in many manufactured items and also an essential fuel for road transport, aviation and even the railways. As superman costs rise, the prices of other products tend to rise in general. A famous instance of price rise is the demand-pull factors that led to a steep rise in the price of onions in the year 2000, causing an artificial shortage in the market. In india inflation is calculated on the wholesale price index (WPI), representing the increase in wholesale price market. But it differs greatly if calculated on the consumer price index (CPI), which matters more to consumers.However, calculation of inflation is on wholesale price index because they are more or less same throughout the country, while the consumer or retail prices divert across the different regions (rural and urban) and also among different cities, depending on consumer preference for certain(p) products, the supply and the purchase power. Taxes levied by different deposits also play an heavy role i n the variation of prices of the same product from one state to another. Though wholesale prices rise at a slow pace (2-3%) comparatively, consumer prices tend to rise at a faster rate (8-9%), which is why we feel the pinch. One of the reason for this is the substantial retailers margin, which is construct into what the consumer pays. Besides, the way the two indices are calculated differ both in terms of weightages assigned to respective products as well as the salmagundi of item included in the basket of products. However, inflation is a requisite evil for developing and developed countries.