Measures to Control Inflation

The demand side

Control of Money Supply

The money supply has a great influence on the rising inflation that is, inflation with increasing the money supply and vice versa. Therefore, to control inflation, measures must be taken to control the money supply. The money supply can be controlled with the help of monetary policy in which the central bank uses various methods, such as bank rate policy, open market operations, changes in reserve requirements, credit rationing , direct action etc. All these methods are useful to control the rate of inflation in a country.

There is no Deficit Financing

Deficit financing shows that public spending beyond their income. The purpose of deficit financing is to meet the additional costs that the budget deficit. Because the money supply increases in the country and causes inflation. Therefore the deficit financing should be discouraged and all development costs must be met through taxes and debt.

Population Control

[large]In most developing countries, the population is increasing very quickly that the production of goods and services does not increase at the same pace. Because the imbalance between supply and demand of goods and services are produced and cause inflation. Therefore, to control inflation, appropriate measures should be taken to control the population.

Fiscal Policy

Fiscal policy refers to government policy of public spending and taxes. The main fiscal policy objective is to maintain only the slight change in the general price level. During inflation, the government tries to reduce its expenditure on unproductive activities and the direct tax rate increases so that the purchasing power of the population is reduced. Due to the reduction in the purchase of the population, demand for goods and services will be reduced and controlled inflation.

Direct Measures

There are several other options available to the government to control inflation and wage and price freeze, the rationing of goods, establishment of public service shops, the price review committees, boards of price stabilization, etc. This direct measures are often used by the government to control inflation.