Inflation

Inflation

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Lumbo, AngeliePendon, Chryzta LyneSanao, Angie LynSercedillo, PauleneGroup2 MLS2E

consumers. good economy.

Inflation occurs due to the imbalance between demand and supply of money, changes in production and distribution cost or increase in taxes on products.

When the economy experiences inflation, i.e when the price level of goods and services rises, the value of currency reduces. This means now each unit of currency buys fewer goods and services.

Group2 MLS2EGroup2 MLS2EDifferent Types of Inflation1. 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..

2. Walking Inflation

This type of strong, or pernicious, inflation is between 3-10% a year. It is harmful to the economy because it heats upeconomic growth too fast. 3. Galloping Inflation

When inflation rises to ten percent or greater, it wreaks absolute havoc on the economy. Money loses value so fast that business and employee income can't keep up with costs and prices.

4. HyperinflationHyperinflation is when the prices of most goods and services skyrocket, usually more than 50% a month. It usually starts when a country's Federal government beginsprinting moneyto pay forfiscal spending.Group2 MLS2EInflation solutionsInflation hedged share classes Duration-hedged share classes Structured inflation products

Quantitative duration strategies

Thematic equity Commodities

Causes Demand Pull InflationCost Push InflationRising WagesImport PricesRaw Material PricesProfit Push InflationDeclining ProductivityHigher taxes Rising House PricePrinting More MoneyGroup2 MLS2E

Demand pull inflationIf the demand is at close to full employment then an increase in AD leads to an increase in the price level.We can have a demand pull inflation , if growth is above the long run trend rate of growth.The long run trend rate of econo mic growth is the average sustainable rate of growth and is determined by the growth in productivity.

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Group2 MLS2ECost Push Inflation It happens when there is an increase in the costs of firms, then firms will pass this on to consumers. There will be a shift to the left in the AS.

Group2 MLS2EFactors of Cost push inflation1. Rising wages If trades unions can present front then they can bargain for higher wages. 2. Import PricesIf there is a devaluation then import prices will become more expensive leading to an increase in inflation.

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Group2 MLS2E3. Raw Material PricesThe 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. 4. Profit Push Inflation When firms push up prices to get higher rates of inflation.eclining 5. Declining ProductivityIf firms become less product and allow costs rise, this invaribly leads to higher prices.

Group2 MLS2E6. Higher taxesIf the government put up taxes, such as VAT and Excise duty, this will lead to higher prices, and therefore CPI will increase. There is even a measure of inflation (CPI-CT) which ignores the effect of temporary tax rises/decreases.

Group2 MLS2ERising house prices Do not directly cause inflation, but they can cause a positive wealth effect and encourage consumer led economic growth.Printing more moneyIf the central bank prints more money , you would expect to see a rise in inflation. Hyperinflation is usually caused by an extreme increase in the money supply.

Group2 MLS2EEffects of InflationReduces the value of moneyLose of purchasing powerRedistribution of incomeRedistribution between debtors and creditorsDiscourage investments and long term economic growth

Group2 MLS2EEFFECT ON HEALTHLess access to healthPrevalence of diseasesIncrease in morbidity and mortality rate

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3.55.03.72.6Inflation, consumer prices (annual %) Inflation as measured by the consumer price index reflects the annual percentage change in the cost to the average consumer of acquiring a basket of goods and services that may be fixed or changed at specified intervals, such as yearly.

5.55.4 5.68.22.44.7Inflation, GDP deflator (annual %) Inflation as measured by the annual growth rate of the GDP implicit deflator shows the rate of price change in the economy as a whole. Group2 MLS2E5.73.42.3Group 2:MLS 2E

Inflation in asiaCentral bank discount rates, Asia and the Pacific, 2011 and 2012

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Change in average exchange rates against the United States dollar, Asia and the Pacific, 2012Group2 MLS2EThe Federated States of Micronesia is the only Asian and Pacific country to use the United States dollar as its national currency.

Group2 MLS2EIn Philippines, there is most important categories in the Consumer Price Index

Philippines Consumer Price Index (CPI)1957-2015

In Philippines, the Consumer Price Index or CPI measures changes in the prices paid by consumers for a basket of goods and services. Group2 MLS2EEND

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