Vol. 3, Issue 4, Part A (2017)

Abstract
A growing number in the developing countries are practicing inflation as it is a monetary policy framework. The Central bank of India is trying to implement inflation targeting it to take into account the various experiences from other countries. This study provides the analysis of changes in inflation due to its implementation. This research shows that there is a significant effect on the implemented inflation and variability of growth. It provides the best statistical explanation of inflation dynamics and CPI inflation as an inflation measure. This outcome also shows that the Indian firms follow backward and forward looking behavior. Both the real marginal cost and exchange rate pass-through play an important role in inflation. India is more backward looking in price setting behavior when compared to UK and Australia, although the price rigidity is significantly higher in both countries. At the time of Inflation on average the Indian firms keeps the price unchanged for a certain period of time mostly ranging from 9-10 months and the rest of the Indian firms reset their prices at any given point of time. As such Inflation is a state where the Value of Money falls and the Price increases.