Inflation refers to a sustained rise in the general price level in the economy and a fall in purchasing power of money over a period of time. The various factors influencing inflation in India are: Demand Pull factors: These are those set of factors due to which there may be an increase in the demand of goods and services in the economy. Some of them are:

• Increase in government expenditure: It results in increased demand for goods and services and consequent increase in prices. If the production capacity is not able to meet the increasing demand it results in inflation.
• Deficit Financing through minting: The Government may print new money to meet its expenditure, however this may also have inflationary effect. Increased money supply, leading to increase in purchasing power of the people, pushes the aggregate demand upwards and contributes to price rise.
• Rising population: Increased demand by the rising population can act as an important factor in pushing up prices, especially when the supply is unable to meet the demand.
• Black Money: It increases the demand for commodities, leads to extensive hoarding and black marketing in essential goods. This tends to raise the price level further.
• Changing consumption patterns: Inflation problem in India has its roots in a sharp increase in demand for certain food items that people eat more frequently as income rises. One example is the increase in consumption of protein-rich food like pulses, eggs, fish etc.

Cost- Push Factors:

• Rise in wages: At times rise in wages. if greater than rise in productivity, increases the costs therefore increasing the prices too.
• Increase in indirect taxes: It also leads to cost side inflation. Taxes such as custom and excise duty levied on commodities raise the cost of production.
• Increase in administered prices: Such as the MSP (Minimum Support Price) for food grains, petroleum products etc. also leads to inflation as they have a huge share in the budget of citizens.
• Infrastructural bottlenecks: Infrastructural bottlenecks such as the lack of proper roads, electricity, water etc. raise per unit cost of production.
• Fluctuation due to seasonal and cyclical reasons: Owing to events such as failed monsoons, there is a drop in agricultural productivity, which results in inflation at times.

Miscellaneous Factors:

• Rise in price of international commodities such as edible oil, crude oil etc.
• Large number of middlemen and large amounts of money siphoned off as profits by them.
• Cartelization practices as adopted by some traders in the Indian economy thereby harming the interests of the consumers.
• Prolonged industrial unrest, which results in reduction of production capacity and decrease in supply of goods.

India has formed an institutional Monetary Policy Committee to target inflation and maintain price stability in the economy. The government fiscal policy works in tandem with the target determined by the Monetary Policy Committee.