PRESENTED BY

AKIB AL ADIB PRANTO

B 150203016

INFLATION. . .

A TERM USED IN ECONOMICS

WHEN A RISE IN THE GENERAL LEVEL OF GOODS AND SERVICES IN AN ECONOMY OVER A PERIOD OF TIME IS KNOWN AS INFLATION.

IF GENERAL PRICE LEVEL RISES, EACH UNIT OFCURRENCY BUYS FEWER GOODS AND SERVICES.

An Upward trend in Inflation over last couple of years,

Reduces the net consumption of the poor.

INFLATION IN BANGLADESH

Source: Bangladesh Bureau of Statistics (BBS)

8.6

9

6.7

8 7.3

5

6.4

1

5.8

4

5.4

5

7.7

2

5.2

2

8.5

7

6.6

8

4.9

1

6.9

5

10

.21

9.1

7

5.5

4

5.9

9

7.4

7

4.6

1

2 0 1 2 2 0 1 3 2 0 1 4 2 0 1 5 2 0 1 6 2 0 1 7

General Inflation Food Inflation Non-food Inflation

1. The inflation rate in Bangladesh was recorded at 5.45 percent in September 2017.

2. Inflation rate in Bangladesh averaged 6.60 percent From 1994 to 2017.

3. Highest inflation rate recorded in September of 2011 and a lowest recorded of -0.03 percent in December of 1996.

INFLATION RATE IN BANGLADESH

INFLATION RATE & ECONOMIC GROWTH

Decrease in the purchasing power

Redistribution of Income & Wealth

Lowers National Savings

Rising Price of Imports

Discourage Investment and Savings

Unemployment

PRESENTED BY

MD. SHAKAWAT HOSSAIN

B 150203032

CAUSES OF INFLATION

1.Demand Pull Inflation

National output

Pri

ce le

vel

p

P1

AD>AS

Why Demand Pull Inflation Occurs?

I. Depreciation of exchange rate

II. Higher demand from a fiscal stimulus

III. Monetary stimulus to the economy

IV.Marketing and new technology

2.Cost Push Inflation

National Output

Pri

ce L

eve

l

p

P1

Why Cost Push Inflation Occurs?

I. Components cost

II. Rising labor cost

III. Monetary employments

PRESENTED BY

MD. MAHABUB MIAH

B 150203019

• Trend in inflation: General inflation increased from 5.47% in April 2017 to 5.94% in June 2017.The twelve month average consumer price index has assumed upward trend in recent time as well as previously CPI inflation has been steadily coming down to 5.03% in December 2016.

IMPACT OF INFLATION

IMPACT OF INFLATIONInflation has both positive and negative impact on the economy. The economic impact of inflation are:

1. Impact on income and wealth distribution: Inflation affects the distribution of income and wealth because of difference in the assets and liabilities that people hold. Inflation increase income who owe money and decrease income who lend money.

2. Impact on economic efficiency: Inflation impairs economic efficiency because it distorts prices and price signals. It also distort the use of money. If the inflation rate rise from 0 to 10%;the real interest rate on currency fall from 0 to 10%.it also increase the real value of taxed paid even though real income have not changed.

Impact of inflation on manufacturing industry: more than 80% of the companies in both the manufacturing and non manufacturing industries have replied that advancing inflation reduce profit. Growth rate of revenue

IMPACT OF INFLATION

Growth and inflation: Numerous studies state that inflation has negative effect on output growth..

1. A nonlinear relationship between inflation and economic growth has been found in the study of sarel (1996); ghosh and Phillips(1998).They found a effect of inflation on economic growth.

2. Joao Ricardo Faria and Francisco(2001) analyzed the data for brazil and found that inflation does not impact growth in the long run but in the short run there exists a negative effect.

IMPACT OF INFLATION

• Private sector credit growth: private sector credit growth slightly increased from 16.1% in march 2017 to 16.2% in April then decline to 16% may 2017.Taking account of the recent trend, it is cautioned that the target of 16.3% growth in private sector credit for first half of the current fiscal year may remain unachieved.

IMPACT OF INFLATION

PRESENTED BY

MD. SOHEL AHMED

B 150203047

PHILLIPS CURVE

RELATIONSHIP BETWEEN INFLATION AND UNEMPLOYMENT

INFLATION AND UNEMPLOYMENT RATE IN BANGLADESH

8.69%

6.78%

7.35%

6.41%

5.84%

4.48%4.26% 4.24% 4.12% 4.07%

0.00%

1.00%

2.00%

3.00%

4.00%

5.00%

6.00%

7.00%

8.00%

9.00%

10.00%

2012 2013 2014 2015 2016

Inflation Unemployment

RELATIONSHIP BETWEEN INFLATION AND GDP

GDP is negatively related with inflation

When inflation increases cost of

production increases

Increasing cost of production fall

profits of organization, which reduces

Growth Domestic product (GDP)

INFLATION AND GDP RATE IN BANGLADESH

8.69%

6.78%

7.35%

6.41%

5.84%

6.52%6.01% 6.06%

6.55%7.05%

0.00%

1.00%

2.00%

3.00%

4.00%

5.00%

6.00%

7.00%

8.00%

9.00%

10.00%

2012 2013 2014 2015 2016

Inflation GDP

RELATIONSHIP BETWEEN INFLATION AND REMITTANCE

Inflation and Remittance are positively

related

When remittance increased, inflation

also increased

Food inflation in more affected by

remittance

House and constitution is less affected

by remittance

INFLATION AND REMITTANCE RATE IN BANGLADESH

8.69

6.787.35

6.415.84

14.16 13.8314.94 15.32

13.16

0.00

2.00

4.00

6.00

8.00

10.00

12.00

14.00

16.00

18.00

2012 2013 2014 2015 2016

Inflation Remittance (in Billion)

PRESENTED BY

BISWAJIT DEBNATH

B 150203082

POSITIVE EFFECT OF INFLATION IN BANGLADESH

1. Labor market adjustment

2. Room to maneuver

3. Mundell-Tobin effect

4. Instability with Deflation

5. Financial Market Inefficiency with Deflation

Labor Market AdjustmentKeynesians believe that nominal wages areslow to adjust downwards. This can lead toprolonged disequilibrium and highunemployment in the labor market. Sinceinflation would lower the real wage ifnominal wages are kept constant,Keynesians argue that some inflation is goodfor the economy, as it would allow labormarkets to reach equilibrium faster.

Room to ManeuverThe primary tools for controlling the money supply are the ability to set the

discount rate, the rate at which banks can borrow from the central bank, andopen market operations, which are the central bank’s interventions into thebonds market with the aim of affecting the nominal interest rate.

If an economy finds itself in a recession with already low, or even zero, nominalinterest rates, then the bank cannot cut these rates further in order to stimulatethe economy – this situation is known as a liquidity trap.

A moderate level of inflation tends to ensure that nominal interest rates staysufficiently above zero so that if the need arises the bank can cut the nominalinterest rate.

Mundell-Tobin EffectThe Nobel laureate Robert Mundell noted that:

Moderate inflation would induce savers to substitute lending for some money holding as a means tofinance future spending.

That substitution would cause market clearing real interest rates to fall. The lower real rate of interest would induce more borrowing to finance investment.

The Nobel laureate James Tobin noted that: Such inflation would cause businesses to substitute investment in physical capital for money balances in

their asset portfolios. That substations would mean choosing the making of investment with lower rates of real return. The rates of return are lower because the investments with higher rates of return were already being

made before.

The two related effects are known as the Mundell-Tobin effect. Unless the economy in already overinvestingaccording to models of economics growth theory, that extra investment resulting from the effect would be seenas positive.

Instability with DeflationContinually falling prices and the resulting incentive to hoard money will cause

instability resulting from the likely increasing fear, while money hoards grow in value ofthose hoards are at risk, as people realize that a movement to trade those moneyhoards for real goods and assets will quickly drive those prices up.

Any movement to spend those hoards “Once started would become a tremendousavalanche, which could rampage for a long time before it would spend itself.

Thus, a regime of long-term deflation is likely to be interrupted by periodic spikes ofrapid inflation and consequent real economic disruptions.

Moderate and stable inflation would avoid such a seesawing of price movements.

Financial Market Inefficiency with Deflation When savers have substituted money holding for lending on financial markets, the role of

those markets in channeling savings into investment in undermined.

With nominal interest rates driven to zero, or near to zero, from the competition with a highreturn money asset, there would be no price mechanism in whatever is left of those markets.

With financial markets effectively euthanized, the remaining goods and physical asset priceswould move in perverse directions.

For example, an increased desire to save could not push interest rates further down butwould instead cause additional money hoarding, driving consumer prices further down andmaking investment in consumer goods production thereby less attractive.

Moderate inflation, once its expectation is incorporated into nominal interest rates, wouldgive those interest rates room to go both up and down in response to shifting investmentopportunities, or severs’ preferences, and thus allow financial markets to function in a morenormal fashion.

PRESENTED BY

MD. EHSANUL HAQUE

B 150203072

Short term mechanism Long term mechanism

Monetary policy Fiscal measure Supply reforms Work force reformation

SHORT TERM MECHANISM

Monetary policy:Bank rate policy

CRR

SLR

Open market operation

Fiscal measure:Changing in Taxes

Savings

Surplus budget

LONG TERM MECHANISM

Supply Reformation:

Minimizing input cost

More output at lower cost

Work Force Reformation:

Introduce part-time and temporary work force.

It decreases the labor cost.

Reduce cost push inflation.

There are many factors behind the rising trend of inflation in

Bangladesh. Such factors contribute, in their own way, to the price-

hike of essential items. A detailed analysis of the situation is, thus,

called for, in order to help devise a strategy for combating inflation

effectively. From the various monetary, fiscal and other measures

discussed above, it becomes clear that to control inflation, the

government should adopt effective measures appropriately.

CONCLUTION

Referenceshttps://en.wikipedia.org/wiki/Inflation

https://www.bb.org.bd/econdata/inflation.phphttps://www.slideshare.net/hefazot2013/inflation-and-its-effect-

on-bangladeshhttps://www.brecorder.com/2017/07/11/358605/bangladesh-

inflation-cools-in-fy-201617-food-inflation-climbs/https://tradingeconomics.com/bangladesh/inflation-rate-mom

https://www.academia.edu/721976/A_case_study_of_Bangladesh-_Inflation_Unemployment_Growth_Trend