Inflation is the general increase in the price level. This increase in the price level reduce the purchasing power and the disposable income. This decrease hurts the poor most. There are various ways to control inflation. Some of them are as follows:
Credit Control: Central bank (RBI in India) can control the money flow into economy through
various methods. Ex: Changing CRR, SLR, etc.
Demonetization of currency: It means to withdraw currency notes (generally higher
denomination) from the economy. This brings out black money and helps control Inflation.
Issue of new currency: This is helpful to curb hyperinflation by exchanging old notes with a newnote. But this burdens the small depositors.
Increase in taxes: Increasing tax leads to less disposable income, which cuts consumption and
hence controls inflation. But increasing it to a very high-level leads to low savings and
investment which slowdowns economy. Instead, tax benefits for investments and savings
should be encouraged while using this measure.
Reduction of unnecessary Government expenditure and surplus budgets: Cutting down
unnecessary spending and also giving up deficit financing helps in reduction of money and
controls inflation. Also public debt repayment should be stopped temporarily and more debt
should be taken.
Increasing production: The main factor for inflation is not having enough supply for the
increasing demand. There are various methods to increase production from expansion to
increasing productivity.
Rational Wage Policy: To prevent inflation spiral from happening, the wages can be freeze-d orcan be linked with productivityHelps control inflation.
Price Control and Rationing: By either controlling prices of essential goods or distributing
essential commodities, demand can be reduced and prices can be in check.
