Other Policies to Reduce Inflation

Wage Control

If inflation is caused by wage inflation (e.g. powerful unions bargaining for higher real wages), then limiting wage growth can help to moderate inflation. Lower wage growth helps to reduce cost-push inflation and helps to moderate demand-pull inflation.

However, as the UK discovered in the 1970s, it can be difficult to control inflation through incomes policies, especially if the unions are powerful.

Monetarism

Monetarism seeks to control inflation through controlling the money supply. Monetarists believe there is a strong link between the money supply and inflation. If you can control the growth of the money supply, then you should be able to bring inflation under control. Monetarists would stress policies such as:

• Higher interest rates (tightening monetary policy)
• Reducing budget deficit (deflationary fiscal policy)
• Control of money being created by government

CONCLUSION:

Hence inflation is a situation of sustained upswings of prices. Beyond the full employment level, inflation becomes dangerous.So it has to be kept under control.