5.2 Inflation

Concept: a sustained rise in the general price level — not one price rising (relative price change) but all prices drifting up: money's purchasing power falling (Unit 2.1's store-of-valueeroding). Measurement: the Consumer Price Index (the household basket's cost — Nepal's CPI computed and published by the NRB from the statistics service's price surveys; the base-year basket's weights — food, housing, transport…), the wholesale price index, the GDP deflator; headline vs core inflation (core excludes volatile food and fuel — the trend measure); the index numbers' arithmetic (the base year = 100; the percentage change = the inflation rate).Types and causes (the taxonomy the exam wants): | Type | Mechanism | The saw/illustration | |---|---|---| | Demand-pull | aggregate demand outruns capacity — too much money chasing too few goods | the war boom; the remittance-fueled surge | | Cost-push | input costs rise (wages, fuel, imports) and prices follow | the oil shocks; supply disruption | | Imported | the small economy's prices set abroad (exchange-rate pass-through) | Nepal's dominant type — via theIndian peg and the import bill | | Structural | bottlenecks (agriculture's supply inelasticity, administered prices) | the harvest-failure vegetable spike | | Hyperinflation | the collapse of monetary trust (the printing press) | Germany 1923 (the wheelbarrow); Zimbabwe | | Stagflation | inflation with stagnation (the…