Inflation Is A Low Rate Of Inflation

This task request will be focussed on providing input for the development of Inflation Working Paper (WP) currently in draft phase. The recent version of the WP is attached for your reference purpose only.

1. What is inflation? Inflation is an increase in prices for goods and services (What is Inflation?).

In economics, with the inflation is a rise in the actual general level of prices of goods and services in an economy from over a period of time. When the general price level rise, such as each of the units currency buys fewer goods and services. Consequently, inflation reflects a reduction in the purchasing power4 per unit of money. This therefore means that with the loss of real value in the medium of exchange and unit of account within the given and actual economy. With a chief measure for example and the price of inflation is within the given inflation rate, the annualised percentage change within a general price index over time in which is normally the consumer price index.

In 2015 Australia had an inflation rate of 1.70% (Australia Inflation rate, 2016) and Indonesia’s was 4.45% (Indonesia inflation rate, 2015). The inflation rate is the level at which the prices for goods and services are rising. It is apparent that inflation is effecting Indonesia more drastically, causing an increased in the cost of goods and services. Indonesia’s high inflation rate correlates with their Consumer Price Index. This being the case, the cost of living is more expensive in Indonesia than in Australia, which effects the living standards.

When the price level rises, each unit of currency buys fewer goods and services. Over the long term, unanticipated inflation can cause a number of problems for an economy. Businesses will invest less in long-term projects because of the uncertainty of returns, price information becomes unclear, and consumers will spend more time trying to protect themselves from inflation and less time engaging in productive activities. If the Australia’s inflation rate is above normal range, then its cause for concern. It has impact on various ways in the economy.

In the midst of World War II, bread could be purchased for around $0.10, less than $1,000 for a brand new car, and a nice middle class house would sell for around $4,000 - $6,000. However, in our current day we all know these items, along with everything else, cost much more today than they did during the second world war, a substantially greater amount. This shows that we experienced a noteworthy amount of inflation since the war. Shortly thereafter, in the mid-to-late 1970s, inflation skyrocketed to double-digit levels, which threw America into hysteria. Ever since, the general publics anxiety dwindled along with inflation rates, but the same public is still timid when it comes in regard to inflation, even though we have recently experienced minimal levels over the past few years. Even though most everyone knows that prices go up over time, they still do not fully understand the forces behind inflation. Hopefully some of the uncertainties are clarified in the following paper. Inflation, along with purchasing power, is depicted and elucidated in terms with how the two are congruent to one another. Also, this paper notes how measurements are taken to predict future interest rates, which helps everyone from consumers to producers, so they can be prepared for the change in value of their dollar.

Ronald Reagan once said, “ In a world wracked by hatred, economic crisis, and political tension, America remains mankind's best hope.”America may be mankind’s best hope, but will it remain that way? America is the beacon for freedom and equality, but with the recent election, it may difficult for us to remain a country full of diversity and hope. In order for the United States economy to prosper, the government must control inflation rates, raise employment rates, and change the current income inequality ratio.

Inflation is one of the most talked about words in society that causes a big problem in economics today. Inflation is an increase in the overall prices of goods and services and a decline in the purchasing value of money. This exists when the money supply surpasses the goods and services that are available. For this commentary, I chose to pick the article In a Venezuela Ravaged by Inflation, ‘a Race for Survival’ that deals with the topic inflation.

There are only a few ways to increase production, which include hire more workers, increase hours, buy more equipment, and take advantage of technology to produce more. The government must form a way that the economy doesn’t grow too slow or fast so they can prevent disastrous events. The importance of modern currency lies in its purchasing power. Inflation signals the rising prices, but the way to think about it isn’t like that, but that the currency’s purchasing power decreases. With hyperinflation, fixed loans are impossible because nobody wants to risk it when the money can potentially become worthless. With moderate inflation, it can destroy wealth if it isn’t managed properly. Inflation is good for those who owe debt, but bad for those who lend money. Inflation may be bad, but deflation is worse. Prices fall because the economy is broken, but now the economy is broken because the prices have fallen.

The country I live is Brazil. It’s a third world country that is always needing and owing money over fiscal policies loans and developed countries. Brazil has a very poor and unprepared form of taking care about the country’s economy. It looks like we’re always owing each day more, the taxes are each time bigger and the inflation takes care of the country in a way that, we never know what will happen tomorrow, but the only thing we can predict is that the inflation for Brazilians will be bigger.

Inflation doubled in 2007 and reached a peak at 28% in 2008.The fiscal make up 4-5% GDP and the trade deficit accounted for 20% GDP in which approximately $US17.5 billion dollars. The influence of high fuel combine with food prices and high domestic demand lead to high inflation. The high price of fuel in Vietnam illustrates global fuel prices and the high domestic demand of country importing fuel. Furthermore, the increase in global food prices affect detrimental to the high inflation in Vietnam.(Figure 2)

A lot of literatures have already studied about the inflation and inflation prediction and in this paper literature review will be discussed from the theoretical aspect and empirical aspect. The researches of the inflation, which are studied, by a lot of scholars in the field of economics have been conducted for a long time especially during the 1970s and it is the heyday when people would like to pay more attention to research the inflation. The inflation has become a hot topic among the economic life and social life since 1987. However, no matter whether it is in the western economic field or in the Chinese economic field, people have different definitions on the inflation and so far there is no unified opinion and conclusion can be accepted generally by everyone. For example, Wyplosz and Burda (1997), Blanchard (2000), and Barro (1997) define that inflation is a sustained rising in the overall price level of products and services in an economy throughout the time period. By contrast, Zha and Zhong (2016) define that inflation is considerable as the mechanism to improve economic growth. In general, the common definition of the inflation is that the inflation is a continuous rising process in the aspect of price. In other words, the value of the currency decreases continually.

Inflation is blazing subject that delays the economic development of the country. It is becoming extra hectic to economists, politicians and even people also. Factors on both demand and supply effect the inflation. So the stabilization strategies ought to consequently focus on both demand manipulation as well as

Inflation is when there in an increase in price of goods and service, causing there to be a fall in the currency as lesser goods and services can be brought by each unit of currency due to the rise in price. Rapid economic growth will often lead to inflation. When the economy is rapidly growing, a company will need to employ more employees, resulting to a fall in unemployment rate. As unemployment rate falls, lesser people will be looking for jobs and the company will find it harder to fill up job vacancies. This will cause the salaries of the workers as well as company spending to increase, resulting in the company passing on the extra costs to the consumer. Together with the raise in salaries for the employees, they will have more to spend, resulting in an increase in an aggregate demand. All this will result in rapid economic growth, where the increase in price will cause inflation to occur.

Disadvantages of inflation include high inflation rates that can cause hesitation and mistakes leading to less investment. It is discussed that countries with higher inflation, have lower rates of investment and economic growth. The higher the inflation the lower world-wide competitiveness. Another disadvantage is menu costs and the costs of changing price lists, stabile wage growth and declining incomes. Most importantly it can dcreas the real value of savings, which may affect older people who live on savings. However, it does depend on whether interest rates are higher than the inflation rate.