Inflation and Deflation

Inflation and Deflation:

The word ‘inflation’ and ‘deflation’ are not simple to define. Various economists have stated them in different manners. Crowther has specified us the most simple and helpful definition of such terms. According to Crowther, “Inflation is a state in which the value of money is dropping, that is, prices are rising”. Therefore it is usually regarded that during a period of inflation, the price level will increase. It is too explained as a situation where too much money chases too few goods resultant in an abnormal raise of price level. Shapiro has stated inflation as “a persistent and appreciable increase in the general level of prices”. And Harry Johnson has stated it as a “sustained rise in prices”. Though, we must remember one significant point. That is, there can be inflation even lacking a rise in the price level. This is termed as ‘Repressed Inflation’. Generally this occurs during a war period. On account of many controls and rationing which exist during wartime, prices will be kept beneath check. However the moment controls are withdrawn, prices will mount up. Therefore the real test of inflation is neither an augment in the amount of money nor a rise in prices, however the appearance of abnormal gains. Whenever businessmen and producers build vast profits, it is a sign of inflation.

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