China’s economy has slipped into deflation as consumer prices declined in July for the first time in more than two years. The official consumer price index, a measure of inflation, fell by 0.3% last month from a year earlier.

 LEARNING FROM HOME/ WITHOUT CLASSES/ BASICS

INFLATION: It is an economic condition in which prices of goods and services rise and the value of money falls or money circulation exceeds the production of goods and services. This rise in the general price level in an economy results in the decline of the currency’s purchasing power over time.

Hyperinflation: This occurs when prices go up by 50% a month. It is a
very rare occurrence.

Galloping Inflation: When inflation rises to 10% or more, it causes chaos. The currency loses its value so quickly that businesses and employee income can’t keep up with costs and prices.

Stagflation occurs when economic growth is stagnant but there still is price inflation. 

Core Inflation: It is the rise in the prices of everything except food and energy. That’s because the prices of energy (power and fuel) and food are highly volatile, and therefore, they have been kept out of core inflation.

Demand-Pull Effect

Demand-pull inflation occurs when an increase in the supply of money and
credit stimulates overall demand for goods and services in an economy to
increase more rapidly than the economy’s production capacity. This increases demand and leads to price rises.

Cost-Push Effect

Cost-push inflation is a result of the increase in prices working
through the production process inputs.

Deflation is the opposite of inflation. It refers to a sustained and general decrease in the overall price levels of goods and services in the economy.

In such a environment, consumers can buy more goods and services for the
same amount of money over time.

Fiscal Policy: This policy monitors the spending and borrowing of the economy. When the borrowings are high, it results in increased taxes and increases currency printing to repay the debt.

Monetary Policy: This policy monitors the supply of currency in the market. When there is an excess supply of money, it causes inflation and decreases the value of the currency.

DISINFLATION:  

It refers to a situation in which prices are brought down moderately from
their higher level without any adverse impact on production and employment.

        The nation’s central bank changes interest rates to keep inflation at around 2% to 6%. The RBI will lower interest rates to boost lending if inflation does not reach its target. The RBI  will raise interest rates if inflation exceeds its target. Inflation targeting has become a critical component of monetary policy.

Fiscal Policy: This policy monitors the spending and borrowing of the economy. When the borrowings are high, it results in increased taxes and increases currency printing to repay the debt.

Monetary Policy: This policy monitors the supply of currency in the market. When there is an excess supply of money, it causes inflation and decreases the value of the currency.