INFLATION

BY: JIANG Kai AIME Jean-Franois GREEDHAREE Yogesh KOUASSI DIDO Anderson COULIBALY Younoussou

AGENDA

Defining Inflation

Measuring Inflation
Causes of Inflation Effects of Inflation Controlling Inflation Hungary's Hyperinflation
Source: www.wpclipart.com

DEFINING INFLATION
Definition

Inflation is the general, persistent and substantial increase of price in an economy.

Meaning

Inflation means there is an increase in the cost of living.

In other words, inflation means that your money won't buy as much as you could yesterday.

Source: all-about-houseboats.com

MEASURING INFLATION
CPI (Consumer Price Index)

A measure that examines the weighted average of prices of a basket of consumer goods and services.

WPI (Wholesale Price Index)

An index that measures and tracks the changes in price of goods in the stages before the retail level.

CAUSES OF INFLATION
2 Main Causes

Demand Pull

Demand and supply dependency. MS>MD, Cash , Demand

Source: www.biziki.com

Cost Push

Price and cost lead to inflation. Triggered by: raw material availability, ROI, Production taxes, natural phenomenons and political reasons.

Source: southdakotapolitics.blogs.com

EFFECTS OF INFLATION
Positive Inflation

Inflation is good as long as there is economic activity and growth ROI : Employment; Income; Money in market; demand But inadequate supply and price increase and profit
Avi

Negative Inflation

Profit ; investment ; income and investment lag. Aggregate demand > Aggregate supply
Source: www.sgwomenandmoney.com

Economy slows down. Leads to overcapacity if price are too high and demand and investments .

EFFECTS OF INFLATION 2
Fixed Income Group

Persons who live on past savings, pensioners, rent receivers. Hardest hit.

Salaried Group

Salary does not rise proportionally with the cost of living.

Debtors and Creditors

Debtors gain. Borrow when value of money is high. Return loan when value of money is less. Creditors lose.

Source: devilsexcrement.com

Entrepreneurs

Benefit form the price increase of their inventories.

CONTROLLING INFLATION
Requires reduction is economic growth.
Monetary policy

Bank Rate
CRR SLR

Repo Rate
Reverse Repo Rate

Fiscal policy

Incomes
Expenditures
Source: reservebanksa.blogspot.com

History

HUNGARY'S HYPERINFLATION

Worst inflation recorded after WWII. Government politics.

Cause

Depression on agricultural sector. (67% of GDP) Devalued currency to cover cost after WWII.

Effects

Prices doubled every 15 hours Highest inflation rate of 1.36X 10^16 %

Source: en.wikipedia.org

Solution

Introduced new currency

Thank You