inflation mls2f group2

GROUP 2: MLS 2F

BULACLAC, MC Chelsea

LASERNA, Cita Mae

MONSALE, Antoinette Marie

TANTENGCO, Precious

INFLATION

Inflation

Definition

Types of Inflation

Creeping Inflation

Walking Inflation

Galloping Inflation

Hyperinflation

Causes of Inflation

Demand Pull Inflation

Cost Push Inflation

Monetary Expansion

(C) MLS2F.GROUPTWO.INFLATION

Effects of Inflation

Positive Effects

Negative Effects

Statistics

Inflation Rate of the World

Inflation Rate in Asia

Inflation Rate in the Philippines

Solutions to Inflation

Monetary policy

Higher interest rates and slowing

money supply

Fiscal policy

Fixation of exchange rates

WHAT IS INFLATION? (C) MLS2F.GROUPTWO.INFLATION

INFLATION is a sustained increase

in the cost of living or

the average / general

price level leading to a

fall in the purchasing

power of money


Types of Inflation


Creeping Inflation

Creeping or mild inflation is when prices rise 3% a

year or less

According to the U.S. Federal Reserve, when prices

rise 2% or less, it's actually beneficial to economic

growth.


Walking Inflation

This type of strong, or pernicious, inflation is between

3-10% a year

It is harmful to the economy because it heats up

economic growth too fast

People start to buy more than they need, just to avoid

tomorrow's much higher prices


Galloping Inflation

When inflation rises

to 10% or greater

Money loses value so

fast that business and

employee income

can't keep up with

costs and prices

Foreign

investors avoid the

country, depriving it of

needed capital.


Hyperinflation

It is when the prices skyrocket more than 50% -- a

month

Very rare

Usually due to unrestrained printing of fiat currency

Most examples of hyperinflation have occurred when

the government printed money recklessly to pay for

war.


WHAT ARE THE CAUSES?



CAUSES

DEMAND-

PULL

INFLATION

COST-PUSH

INFLATION

DEMAND PULL INFLATION

Most common cause of inflation

Demand for a good or service increases so much that

it outstrips supply

A growing economy can create some inflation as

people feel confident about the future and spend

more

Discretionary fiscal policy

Marketing and new technology



DEMAND-PULL

INFLATION

It's simply when demand for a good or service

increases so much that it

outstrips supply. If sellers

maintain the price, they will

sell out. They soon realize

now have the luxury of

raising prices, creating

inflation.

if demand is growing

faster than supply, prices and

inflation will increase over

time.

COST-PUSH INFLATION


This isn't as common

as demand-pull inflation,

because it only occurs

when there is a shortage

of supply combined with

enough demand to allow

the producer to raise

prices

higher costs at

companies leads to higher

selling prices in order to

maintain margins, resulting

in rising inflation.


Cost push

inflation can

be caused by

many factors

Rising wages are a key cause of

cost push inflation because wages

are the most significant cost for

many firms. (higher wages may

also contribute to rising demand)

1. Rising

Wages


One third of all goods are imported in

the UK. If there is a devaluation then

import prices will become more

expensive leading to an increase in

inflation. A devaluation / depreciation

means the Pound is worth less,

therefore we have to pay more to buy

the same imported goods.

2. Import

prices (C) MLS2F.GROUPTWO.INFLATION

The best example is the price of

oil, if the oil price increase by 20%

then this will have a significant

impact on most goods in the

economy and this will lead to cost

push inflation.

3. Raw

Material Prices


4. Profit

Push

Inflation


If firms become less

productive and allow costs

to rise, this invariably leads

to higher prices.

5. Declining

productivity


If the government put up taxes,

such as VAT, this will lead to higher

prices, and therefore CPI will

increase.

6. Higher

taxes


MONETARY EXPANSION

Over-expansion of the money supply

Not just cash, but also credit, loans and mortgages

Money supply increase through Expansionary Fiscal

Policy or Expansionary Monetary Policy.

Cause for inflation in housing prices in 2005-2006

When the money supply expands, it lowers the value

of the dollar


Rising house prices do not

directly cause inflation, but they

can cause a positive wealth effect

and encourage consumer led

economic growth. This can

indirectly cause demand pull

inflation

Rising house

prices


If the Central Bank prints more money, you

would expect to see a rise in inflation. This

is because the money supply plays an

important role in determining prices. If

there is more money chasing the same

amount of goods, then prices will rise.

Hyperinflation is usually caused by an

extreme increase in the money supply

Printing more

money



Inflation is famous for its negative effects

and destruction

but

It has some positive

aspects as well


POSITIVE EFFECTS


Increase in production due to inflation

Increases the employment opportunities in

the country

Enhances the process of economic

development

Increases the economic activities that may

cause to inventions and innovations.

Profit of the producers also in increases

when there is normal inflation


NEGATIVE

EFFECT


It is difficult for consumers to purchase more

goods.

It generates very bad effects on the poor labour

force

Inflation reduces the living standard and

It is harmful for creditors

STATISTICAL UPDATE

Inflation Rate of the World


Global inflation rate comparisons

from 2004 - 2014



The global regions with the highest year-on-year

inflation rate in 2014 are the Middle East and North Africa,

as well as Africa Sub-Sahara. The nations in the world with

the highest inflation rates in 2014 were Venezuela and

Sudan.

As a result of a global economic downturn, the lack of

a sufficient central bank, and the rise in interest rates, the

cost of living in the Middle East has also become much

higher than in industrialized countries. The inflation rate in

industrialized countries in 2014 was just over 1.7 percent.

Meanwhile, the inflation rate in the Middle East and North

Africa amounted to more than 7.6 percent.


Due to economical progress following the global

financial crisis, developed countries in the European

Union and the euro area set forth economic strategies

to strengthen their economy and maintain a stable

economy. In addition, stagnant worker wages and a

hesitation from banks to easily distribute loans to

ordinary citizens have also caused the inflation rate in

the euro zone to be relatively low. Despite having

been harshly impacted by the global financial crisis,

Greece has one of the lowest inflation rates in 2014 in

comparison to the previous year.

Top 20

Countries

with the

highest

inflation

rate in 2014


Higher inflation rates

Third world or developing

countries (lack a sufficient central

bank)

Stable inflation rates

More industrialized countries and

emerging markets


STATISTICAL UPDATE

Inflation Rate of Asia


STATISTICAL UPDATE

Inflation Rate of the Philippines



food and non-alcoholic index 4.8%

alcoholic beverages and tobacco 3.9%

clothing and footwear 3.1%

furnishing, household equipment and routine

maintenance of the house index 2.2%

restaurant and miscellaneous goods and services

1.5%

housing, water, electricity - -1.1%

gas and other fuels and transport indices at - -0.5 %

communication - -0.1%

Solutions on How to Reduce

Inflation (C) MLS2F.GROUPTWO.INFLATION

Following measures can take part

in reduction of inflation:

Reducing government spending by using monetary

policy

Setting higher interest rates and slowing money supply

by the central banks can control inflation

Reducing demand, by taxation through fiscal policy



Monetary Policy

Changing the rate of growth of demand for money

Maintained through actions such as increasing the

interest rate, or changing the amount of money banks

need to keep in the vault (bank reserves)

Affects Interest Rates


Higher interest rates

The result is that consumers

have more money to spend,

causing the economy to grow

and inflation to increase.

As interest rates are increased,

consumers tend to have less

money to spend. With less

spending, the economy slows

and inflation decreases.


Slowing money supply

Money supply grows too fast, the rate of inflation will

increase; if the growth of the money supply is slowed

too much, then economic growth may also slow.


Taxation through fiscal policy

Government adjusts its

spending levels and tax

rates to monitor and

influence a nation's

economy

Find a balance between

changing tax rates and

public spending

Taxation leads to:

Balancing of budget

Additional revenue

Sharing of wealth



Regulate the transfer of foreign currency reserves

Depletion and reduction of the foreign currency

reserves will be prevented


End!


inflation mls2f group2

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