Inflation Full Analysis

In: Film and Music

Submitted By vaibhav12
Words 4390
Pages 18
Financial management report

Submitted by : vaibhav goel(13117074) Shubham Gupta(13117066) Vipul arora(13117076) Shakti rana(13117064)

DEFINITION of 'Inflation'
Inflation is the rate at which the general level of prices for goods and services is rising and, consequently, the purchasing power of currency is falling. Central banks attempt to limit inflation, and avoid deflation, in order to keep the economy running smoothly.
As a result of inflation, the purchasing power of a unit of currency falls. For example, if the inflation rate is 2%, then a pack of gum that costs $1 in a given year will cost $1.02 the next year. As goods and services require more money to purchase, the implicit value of that money falls.
Monetarism theorizes that inflation is related to the money supply of an economy. For example, following the Spanish conquest of the Aztec and Inca empires, massive amounts of gold and especially silver flowed into the Spanish and other European economies. Since the money supply had rapidly increased, prices spiked and the value of money fell, contributing to economic collapse

What Causes Inflation?
We can define inflation with relative ease, but the question of what causes inflation is significantly more complex. Although numerous theories exist, arguably the two most influential schools of thought on inflation are those of Keynesian and monetarist economics.

Different Types of Inflation
Inflation means a sustained increase in the general price level. However, this increase in the cost of living can be caused by different factors. The main two types of inflation are 1. Demand pull inflation – this occurs when the economy grows quickly and starts to ‘overheat’ – Aggregate demand (AD) will be increasing faster than aggregate supply (LRAS).…...

Similar Documents


...RESEARCH PROPOSAL TOPIC: Rising inflation in Pakistan: Causes and Remedies SUBMITTED BY: NAILA ERUM NATIONAL DEFENCE UNIVERSITY, ISLAMABAD Rising inflation in Pakistan: Causes and Remedies Introduction Pakistan is currently facing unprecedented high Inflation. High inflation is contributing to increase in vulnerability and fall in real income of lower, middle and fixed income segments of the society. It is increasing uncertainty about future scenario of the business environment and instability of the financial system, erosion of business and investors’ confidence, slowing down of real economic activities, investment, economic growth and employment. Inflation is known as a rise in the general level of prices of goods and services in an economy over a period of time. When the general price level rises, each unit of currency buys fewer goods and services. Consequently, there is a decline in the real value of money and purchasing power. Inflation is an indicator of a country’s macro economic stability and provides important insight on the state of the economy and the sound macroeconomic policies that govern it. A stable inflation not only gives a nurturing environment for economic growth, but also uplifts the poor and fixed income citizens who are the most vulnerable in society. A numerous supply side and demand side factors could be responsible for this surge in inflation. Inflation can be a result of shocks to the supply of certain food items and to......

Words: 2805 - Pages: 12


...Causes of Inflation: A Study in the Context of Bangladesh Mohammad Nayeem Abdullah1 Robaka Shamsher2 Newaz Ahmed Chowudhury3 Abstract In Asia, Bangladesh is one of the hardest hit by the current wave of inflation and oil price hike. The economy has been observing double digit inflation growth on point-to-point basis since July 2007. In Bangladesh, the correlation between per capita income and food weight in total Consumer Price Index (CPI) is one of the highest in the world and the economy is vulnerable to sharp hikes in fuel and non-fuel commodity prices. The BDTUS$ exchange rate has been depreciating steadily for some time, reaching a record high of BDT 72.70 per USD in January 2011, which has direct impact on food inflation that Bangladesh is currently experiencing. An International Monetary Fund (IMF) study shows food prices on headline inflation has been a staggering 55.9 percent in Asia in 2007, whereas the figure was 34.1 percent in the 2000-06 period. The researchers highlight that a further depreciation of the BDT could lead to additional cost push inflation for Bangladesh. This article attempts to investigate causes and consequences of inflation on the economy of Bangladesh. This paper also reviews the past record of the inflation and makes a forecast on the possible movement of inflation. At the end on the paper the researchers forward some strategic points that might be useful to reduce inflation. Keywords: Food inflation, oil price hike, general inflation, world......

Words: 4831 - Pages: 20


...TH E ECONOMI C WEEKL Y September 23, 1961 Inflatio n No t a Monetar y Phenomeno n ? Promod e K Mukherje e The cause o f inflation, according t o Keith B Griffi n (Th e Economi c Weekly . Special Number 1961 ) lies i n the structura l imbalances i n a n economy . Whil e granting this, i t i s contended here that i t does not follo w that monetary policy has n o role t o play in combating inflation. I t i s not enough t o achieve a n overall balance between output and expenditure. Wha t i s importan t is to secure an increase in the output of basic consumption and investment goods. A well-conceived monetary policy is of crucial importance in discouraging outlay and consequent income creation in wrong directions. Further, an increasing proportion of the income generated in the process of development will go to augment bank deposits, thereby increasing the capacity o f the bank s t o create credit, In the absence of a restrictive monetary policy, a serious credit inflation may consequently ensue and distort the ideal relationship envisaged by Griffin between output and expenditure. Thus, a phenomenon not primarily monetary may ultimately become largely monetary in character. ACCORDIN G t o M r Griffin , infla - tio n result s "i f eithe r desire d con - sumptio ...

Words: 2073 - Pages: 9


...The inflation rate in Singapore was rose to 4.9 percent in February 2013. According to CNBC.Com, the rise was mainly because of more significant increase in private road transport costs as well as food and services inflation were also stronger during the month of February. However, the outlook for 2013 inflation was unchanged at 3.5 to 4.5 percent according to Ministry of Trade and Industry (MTI) and MAS. Both MTI & MAS also reiterated core inflation is likely to average 2 to 3 percent for the whole year. In addition, Nuno Fontes from Trading Economics has said this temporary pick up had been anticipated in the January inflation report due to private road transport cost has climbed by 17.4 percent in February, up from 10.5 percent a month earlier. Discussion A. GDP There are 3 GDP related indicators to study the performance of economy. GDP counts the value of goods and services at the time they are produced. There are two methods of measuring GDP. i. Income Approach: adding up households income i.e. wages, rent, interest and profit ii. Expenditure Approach: GDP = C + I + G + (X-M) The nominal GDP measures the GDP using the value of all the goods and services produced in current prices. Real GDP measures the value of all the goods and services produced in the prices from year to year. • Real GDP = Nominal GDP x 100 GDP Deflator GDP Deflator = (Nominal GDP / Real GDP) x 100 B. Business Cycle Business cycles are dated according to when......

Words: 1041 - Pages: 5


...INFLATION DEFINITION It is defined as a sustained increase in general price level. It can also refer to the condition of “too much money chasing too few goods.” Inflation is an indication of the value of money. A rise in general price means a drop in the value of money held by the society. Inflation is measured using a price index. A weighted consumer price index (CPI) measures the change in the average prices of a ’market basket’ of goods and services purchased by a typical urban household, taking into account importance of certain goods relatively to others. An increase in the CPI reflects inflation in the economy. TYPES OF INFLATION a) DEMAND-PULL INFLATION This happens when there is an excess of aggregate demand for goods and services over aggregate supply or the maximum available outputs in the economy. A high aggregate demand may be the result of an increase in government spending, a drop in taxes or a shock (sudden increase) in investment due to a drop in interest rate. The problem arises when there is an excessive money supply and the economy is moving towards or is already at full employment. The following diagram shows demand-pull inflation. Increase in the price level from P1 to P2 shows the result of an increase in aggregate demand towards full employment income. Output price rises because demand is causing high input price. Further increase in price to P2 shows an increase in aggregate demand above full employment.......

Words: 1454 - Pages: 6


... | |2 |Introduction | | | |3 |Effects of inflation | | | |4 |Causes of inflation | | | |5 |Controlling inflation | | | |6 |Current situation of inflation in India | | | |7 |Extracts of the Reserve Bank of India’s document released on | | | | |July 28, 2008 | | | |8 |Measures to control inflation | | | |9 |Future inflation | | | |10 |10 nations with highest inflation | | | |11 |Media reports | | ...

Words: 13670 - Pages: 55


...PAPER SERIES CAN INFLATION TARGETING WORK IN EMERGING MARKET COUNTRIES? Frederic S. Mishkin Working Paper 10646 NATIONAL BUREAU OF ECONOMIC RESEARCH 1050 Massachusetts Avenue Cambridge, MA 02138 July 2004 For presentation in a conference in honor of Guillermo Calvo, held on April 15 and 16, 2004 at the International Monetary Fund in Washington, DC. The views expressed in this paper are exclusively those of the author and not those of Columbia University or the National Bureau of Economic Research.The views expressed herein are those of the author(s) and not necessarily those of the National Bureau of Economic Research. ©2004 by Frederic S. Mishkin. All rights reserved. Short sections of text, not to exceed two paragraphs, may be quoted without explicit permission provided that full credit, including © notice, is given to the source. Can Inflation Targeting Work in Emerging Market Countries? Frederic S. Mishkin NBER Working Paper No. 10646 July 2004 JEL No. E5, F3 ABSTRACT This paper explores issues in emerging market countries to make inflation targeting work for them. It starts by outlining why emerging market economies are so different from advanced economies and then discuss why developing strong fiscal, financial and monetary institutions is so critical to the success of inflation targeting in emerging market countries. Then it discusses two emerging market countries which illustrate what it takes to make inflation targeting......

Words: 10638 - Pages: 43


...government can take to at least make the price level sustainable. What is Inflation? Inflation is the rise in general level of prices of goods and services. It can be said in other ways that inflation is the decrease in value of money. It means that • Each dollar can purchase fewer amounts of goods and service then previous. • It reduces the purchasing power of the currency. Inflation does not mean that all prices are increasing, even during period of rapid inflation; some prices may be relatively constant while others are falling. The troublesome aspect of inflation is that prices rise unevenly, some raises sharply, some slowly and some don’t rise at all. The main measure of inflation is the consumer price index. Classification of Inflation [theoretical view]: Economists distinguish between two types of inflation, those are described below; Demand–Pull Inflation: Demand - pull inflation is occurred when the demand for goods and services exceeds the actual production capacity of the economy. It happens for mainly; • Availability of the money increased in the market. • Spending of the people increase. Cost-Push Inflation: Cost-push inflation occurs when per unit production cost increase and profitability of producing is not attractable. As a result the economy’s supply of goods and services declines and the price level increase. Literature Review: In general, the cause of inflation in Developed countries is broadly identified as growth of money......

Words: 4038 - Pages: 17


...Inflation – Impacts On The Economic Growth Of Nigeria By DoubleGist | Published: June 5, 2013 Inflation – Impacts  On The Economic Growth Of Nigeria Inflation – Impacts  On The Economic Growth Of Nigeria A macroeconomics problem facing Nigeria, and the most disturbing, is the problem of inflation. As a result of its growing rate, Nigerian government is concerned about its impacts on her economic growth. To place an order for the Complete Project Material, pay N5,000 to GTBank (Guaranty Trust Bank) Account Name – Chudi-Oji Chukwuka Account No – 0044157183 Then text the name of the Project topic, email address and your names to 08060565721. Many authors have written on Impacts of inflation on Nigerian economy, but the authors have different views because inflation analysis, nevertheless, one thing common is that all the authors agree that inflation has Impact on Nigerian economic growth. Samuelson (1973), defines inflation as “a general rising prices for breeds, cars, haircut, rising wages, rent etc. Onwukwe (2003), on his side defines inflation as “a significant and sustained rise in the general price level or a declining value of the monetary units. The problem created by the rising prices of goods and services has become two difficult for government to solve. During inflationary period, fixed amounts of money buy less quantity of goods and services. The real value of money is drastically reduced i.e the purchasing power of consumers are reduced. The Impact of......

Words: 4162 - Pages: 17


...In economics, inflation is a sustained increase in the general price level of goods and srvices in an economy over a period of time. When the price level rises, each unit of currency buys fewer goods and services. Consequently, inflation reflects a reduction in the purchasing power per unit of money – a loss of real value in the medium of exchange and unit of account within the economy. The difference between inflation and a change in price of a particular good or service is that inflation reflects a general and overall increase in price across the whole economy In general, Inflation is caused by some combination of four factors. Those four factors are: Supply goes up or Supply of goods and services goes down or Demand for money goes down or Demand for goods and service goes up Inflation affects an economy in various ways, both positive and negative. Negative effects of inflation include an increase in the opportunity cost of holding money, uncertainty over future inflation which may discourage investment and savings, and if inflation were rapid enough, shortages of goods as consumers begin hoarding out of concern that prices will increase in the future. Inflation also has positive effects: * Fundamentally, inflation gives everyone an incentive to spend and invest, because if they don't, their money will be worth less in the future. This increase in spending and investment can benefit the economy. However it may also lead to sub-optimal use of resources. *......

Words: 9578 - Pages: 39


...WHAT IS INFLATION Inflation is best defined as a sustained increase in the general price level leading to a fall in the purchasing power or value of money MAIN CAUSES OF INFLATION * Demand-pull inflation: Demand-pull inflation is likely when there is full employment of resources and aggregate demand is increasing at a time when SRAS is inelastic. * Cost-push inflation: Cost-push inflation occurs when firms respond to rising costs, by increasing prices to protect their profit margins. There are many reasons why costs might rise: 1. Component cost- This might be because of a rise in world commodity prices such as oil, copper and agricultural products used in food processing 2. Rising labor costs-caused by wage increases, which are greater than improvements in productivity. Wage 3. Higher indirect taxes imposed by the government –A rise in the specific duty on alcohol and cigarettes, an increase in fuel duties or a rise in the standard rate of Value Added Tax. In the case of food rice demand and cost both are playing role. Inflation is an inevitable part of any economy. It is not always a bad thing though and it is necessary in a healthy economy. All in all, inflation keeps our economy going and the world turning, even if portrayed as a villain. HOW INCREASE IN FOOD PRICE IMPACT ON INFLATION The food price hike has accelerated the general inflation rate in the country. If the food price level rises at an existing rate of 1.31 percent per month and if......

Words: 1247 - Pages: 5

Inflation and Its Impact

...Title Page From Inflation to More Inflation, Disinflation and Low Inflation By Allan H. Meltzer The Allan H. Meltzer University Professor of Political Economy, Carnegie Mellon University and Visiting Scholar, American Enterprise Institute Keynote Address, Conference on Price Stability Federal Reserve Bank of Chicago Thursday, November 3, 2005 From Inflation to Disinflation and Low Inflation By Allan H. Meltzer Volume 2 of A History of the Federal Reserve covers mainly the years of inflation and disinflation, followed by a return to what is now regarded as relatively low inflation. It treats four questions: Why did inflation start? Why did it continue for 15 or more years, from 1965 to about 1982? Why did it end? Why did it not return? In this paper, I give an overview of the material that I consider in much greater detail in my book. As we look back to the 1950s and 1960s from the early 21st century, two of the many changes in the Federal Reserve System affecting inflation deserve comment. First, in the 1950s the goal was price stability, zero reported inflation, not inflation of about two percent. The 1959-60 disinflation brought reported cpi inflation, measured as a 12-month moving average, to less than 1 percent from March through August 1959. This measure again was below 1 percent through most of 1961, and it did not reach 2 percent until early 1966. Properly measured and adjusted for biases in the price index, the true price level......

Words: 4732 - Pages: 19


...given resources of an economy, excess demand is said to occur. This excess demand leads to the rise in general price level, that is, inflation in the economy. When aggregate demand exceeds aggregate supply at the current prices at full employment level, the demand inflation is, said to exist. Excess demand results in inflation which is described as demand-pull inflation. At the full employment level, all the productive resources are fully exhausted. Any increase in demand can not bring about rise in real output. The real output remains constant whatever the demand may be. Given the supply of output price level is pushed up with the increasing demand. This excess demand is statistically measured by inflationary gap. The inflationary gap can be removed by increasing output to the extent of increased expenditure. However Demand pull inflation can be eradicated by pursuit different measures. They are (i) fiscal measures (ii) monetary measures (iii) direct controls etc. (i) Fiscal Measures: (1) Increase in taxation Anti inflationary tax policy should be directed to restrict demand without restricting production. Sale tax and Excise duty take away the buying capacity without discouraging productive capacity of the economy. Progressive tax is highly preferred to reduce the disposable income of the people. (2) Reduction in public expenditure During inflation there is excess demand because of the expansion of public and private spending. So the Govt should reduce unproductive......

Words: 793 - Pages: 4


...PRICE INFLATION IN BANGLADESH PRICE INFLATION IN BANGLADESH Course : Economics Prepared for: Dr. Samir Kumar Sheel Assistant Professor Department of Marketing, FACULTY OF BUSINESS STUDIES Prepared by: A.T.M. Golam Kibria Khan EMBA, 19TH BATCH, ROLL: 41119055 Department of Marketing FACULTY OF BUSINESS STUDIES UNIVERSITY OF DHAKA DATE OF SUBMISSION : August 02, 2011 Letter of Transmittal August 02, 2011 Assistant Professor, Dr. Samir Kumar Sheel Course Teacher: Economics Department of Marketing Faculty of Business Studies University of Dhaka Dear Sir, With great pleasure we are submitting our Term Paper on “Price Inflation in Bangladesh”. We have found this report as of informative, beneficial as well as insightful. We have tried our level best to prepare an effective & creditable report. The report contains detail description upon Inflation and the Price inflation in Bangladesh. Here we have gathered information through different sources. I honestly hope that this analytical assessment will identify the causes and impacts of price inflation of Bangladesh. Therefore we hope you will find this report worth all the effort we have put in it. Sincerely Yours, A.T.M. Golam Kibria Khan Executive Summary The current wave of inflation has been eroding purchasing power of the low and middle income people in Bangladesh, as they need to pay much higher bills for food grain and other commodities. The Exchequer of Bangladesh, which absorbs the petroleum price......

Words: 12375 - Pages: 50


...2). Inflation in Bangladesh and Policy Responses a). Present State and comparison with some developing countries b).Problems for entrepreneurs and consumers c). Policy prescriptions d). Some specific programs e).Concluding remarks Last date of submission:1st August, 2012 a). Present State and comparison (country wise Scenario) with some developing countries: According to the Bangladesh Bureau of Statistics (BBS), the national inflation in Bangladesh is 8.56% on point-to-point basis in June 2012; whereas the food-inflation hit 7.08% and the non-food inflation hit 11.72% in the same period. The rural inflation is 7.88% on point-to-point basis in June 2012; whereas rural food and non-food inflation knockout to 6.02% and 11.88% consecutively in the same period. The urban inflation is 10.29% on point-to-point basis in June 2012 as well as successive food and non-food inflation for the same period knockout to 9.57% and 11.28%. By observing above data it can say that national inflation is highly influenced by urban inflation and non-food inflation. Table 1: Inflation Rate (Pint To Pint) FY2011-12 (1995-96=100) | | Jul, 11 | Aug, 11 | Sep, 11 | Oct, 11 | Nov, 11 | Dec, 11 | Jan, 12 | Feb, 12 | Mar, 12 | Apr, 12 | May, 12 | Jun, 12 | National | General | 10.96 | 11.29 | 11.97 | 11.42 | 11.58 | 10.63 | 11.59 | 10.43 | 10.1 | 9.93 | 9.15 | 8.56 | | Food | 13.4 | 12.7 | 13.75 | 12.82 | 12.47 | 10.4 | 10.9 | 8.92 | 8.28 | 8.12 | 7.46 | 7.08 | |...

Words: 2195 - Pages: 9