Legal Definition of Inflation
S j Tubrazy
By inflation, in ordinary language, is meant a process of rising prices. A situation is described as inflationary when either the prices or the supply of money are rising, because both will rise together. It can be said that when money supply increases it results partly in the increase of output (GNP) and it partly feeds the rise in prices. In Coulborn’s words, it is a case of too much money-chasing to a few goods; thus, inflation is generally associated with an abnormal increase in the quantity of money resulting in abnormal rise in prices “(K.K.D. Modern Economic Theory, Lahore, P.435).
It is often hard to determine whether a rise in the price of one product is part of an inflationary trend in the economy as a whole or simply reflects consumer’s willingness, at some point, to spend more of their incomes on that particular product”. (Collier’s Encyclopaedia, Vol. 13, p.7 USA).
J.L. Hanson describing the term of inflation says that there are three senses in which this term is used:-
(1) Inflation on the Gold Standard, where a moderate and controlled expansion of bank credit is encouraged by the Central bank whenever there is an inflow of gold, the extent of an inflation in such circumstances is rigidly controlled since it is dependent on the amount of gold the country concerned has acquired.
(2) Persistent (or Crewing) Inflation, is a condition where the volume of purchasing power is persistently running ahead of the output of goods and services available to consumers and producers; with the result that there is a persistent tendency for prices and wages to rise, that is for the value of money to fall. Since 1939 all countries have experienced varying degrees of persistent inflation.
(3) Hyper-inflation, (alternatively known as a galloping’ or `runaway’ inflation) occurs when a persistent inflation gets out of control and the value of money declines rapidly to a tiny fraction of its former value and eventually to almost nothing, so that a new currency unit has to be adopted”. (J.L. Hanson: A Dictionary of Economics and Commerce, 5th Ed., London p.262).
Inflation is a very complex phenomenon. There is no sovereign remedy to combat it. Measures have to be taken on several fronts, monetary and non-monetary, to flight. An effective supplementary device for controlling inflation is what has been called ‘indexation’.