7.6        ndian      onom
                                                                prices up due to extra-creation of money during
        other VarIants of InflatIon                             the process.
     Other than the three broad categories we analysed
     above, some other variants of inflation are also           DeflAtionAry gAP
     considered by governments in their policymaking:           The shortfall in total spending of the government
                                                                (i.e., fiscal surplus) over the national income
     i. bottleneck inflAtion                                    creates deflationary gaps in the economy. This is a
     This inflation takes place when the supply falls           situation of producing more than the demand and
     drastically and the demand remains at the same             the economy usually heads for a general slowdown
     level. Such situations arise due to supply-side            in the level of demand. This is also known as the
     hurdles, hazards or mismanagement which is also            output gap.
     known as ‘structural inflation’. This could be put
     in the ‘demand-pull inflation’ category.
                                                                inflAtion tAx
                                                                Inflation erodes the value of money and the
     ii. core inflAtion                                         people who hold currency suffer in this process.
     This nomenclature is based on the inclusion or             As the governments have authority of printing
                                                                currency and circulating it into the economy (as
     exclusion of the goods and services while calculating
                                                                they do in the case of deficit financing), this act
     inflation. Popular in western economies, core
                                                                functions as an income to the governments. This is
     inflation shows price rise in all goods and services
                                                                a situation of sustaining government expenditure
     excluding energy and food articles. In India, it
                                                                at the cost of people’s income. This looks as if
     was first time used in the financial year 2000–01
                                                                inflation is working as a tax.23 That is how the
     when the government expressed that it was under
                                                                term inflation tax is also known as seigniorage.
     control—it means the prices of manufactured
                                                                It means, inflation is always the level to which the
     goods were under control.22 This was criticised by         government may go for deficit financing—level of
     experts on account of excluding food articles and          deficit financing is directly reflected by the rate of
     energy out of the inflation and feeling satisfied          inflation.
     on the inflation front. Basically, in the western
                                                                      It could also be used by the governments
     economies, food and energy are not the problems
                                                                in the form of prices and incomes policy under
     for the masses, while in India these two segments
                                                                which the companies pay inflation tax on the
     are of most vital importance for the common
                                                                salary increases above the set level prescribed by
     people.                                                    the government.24
        other Important terms                                   inflAtion sPirAl
                                                                An inflationary situation in an economy which
     inflAtionAry gAP                                           results out of a process of wage and price interaction
     The excess of total government spending above              ‘when wages press prices up and prices pull
     the national income (i.e., fiscal deficit) is known        wages up’25 is known as the inflationary spiral. It
     as inflationary gap. This is intended to increase          is also known as the wage-price spiral. This wage-
     the production level, which ultimately pushes the
                                                                  23.   Stiglitz and Walsh, Economics, p. 511.
       22.  Ministry of Finance, Economic Survey, 2000–01, (New   24.   Penguin Dictionary of Economics.
            Delhi: Government of India, 2001).                    25.   Ibid.