Evaluation of inflation: Inflation is the maintained and recurred rise in the general price level or the continued change in the currency value of a specific country. According to Frisch, “inflation is a process of continuously rising prices, or equivalently, of continuously falling value of money” (pp 9-19). Inflation is a very harmful part of economics to the economy as it may bring long term effects as well as short term effects to an economy. According to economists, inflation is one of the factors why some countries lag behind in terms of development level. However, inflation is a necessary evil for the growth of any economy (Young, 1).
Usually stock market becomes more offensive due to higher interest rate that has to increase by policy maker. The value of stocks slope down due to the anticipation that interest rate to be higher and increase in oil costs decrease the cash flows of companies so the threat to stock market is the oil price fluctuate. So, oil price change besides affecting production and utilization like other merchandise can also be source of change in behavior of depositors and stock prices. Cost and high heating cost which reduces corporate earnings. Higher fuel prices can also stir up inflation.
Inflation inflation is the long term rise in the prices of goods and services caused by the devaluation of currency or a general increase in prices and fall in the purchasing value of money. Through light over the effect of inflation 1)Business competitiveness: On the off chance that one nation has a substantially higher rate of swelling than others for an extensive time frame, this will make its fares less cost focused in world markets. In the long run this may appear through in diminished fare orders, bring down benefits and less occupations, and furthermore in a compounding of a nation's exchange adjust. 1.1)Inflationary development has a tendency to be unsustainable prompting a harming period of boom and bust monetary cycles. For instance,
Demand pull inflation is when total supply of goods and services is insufficient to meet total demand for goods and services by the economy. Cost push inflation is the price increase as a direct result of the increase in the production cost mainly labor cost. The increase in wages and salaries are handed on to consumers in the form of higher prices. Imported inflation occurs when inflationary pressures which develop overseas are transmitted to the domestic economy through the mechanism of international
.3.3 Inflation Rate The inflation rate used as an indicator in measuring the stability of economic condition for a particular country (Rashid et al., 2011). In financial theory, inflation rate reflected by consumer price index (CPI) represents all the price of goods and services will go up and it need to take more money to buy the same items. Moreover, high inflation is likely cause a great impact on economic activities of a particular country because it reduces the purchasing power of domestic consumers and it would lead to currency value decline. The previous researchers believe that the inflation rate will influence the stock market return. There are many empirical studies establish that the inflation rate has an impact on stock market
Inflation is one of the major problems in macroeconomics. Generally in theory, inflation is an increase in the overall price level and it is calculated based on the Consumer Price Index (CPI). Inflation and economic growth are incompatible. Government around the world will take action to minimize the negative impact of inflation to a certain extent when inflation is expected to be happened. Low inflation rate and upward economic growth is impossible in reality (“Inflation and Economic Growth”, 2010).
On the contrary, if a country’s currency depreciates then it leaves an impact on the imports of the country, making it more expensive. Hence, the demand for the exports increases which results in Demand-Pull Inflation which arises due to the condition where the demand of goods is more than its supply and increase in demand leads to increase in price of good because supply is the limiting factor. This is how inflation and exchange rate affect each other. Both Exchange Rate and Inflation play a crucial role in every economy, that’s why it is necessary to study the impact of both on the stock
inflation is defined as a long term rise in the general level of price for goods or service which caused by the devaluation of currency. The Inflationary problems arise when we experience unexpected inflation which is not totally associated by the rise of households incomes, but if the incomes do not increase as the price of goods increased the people purchasing power will effectively reduce and that may lead to stagnant economy. Moreover, excessive inflation can also effect badly on retirement savings as it reduces the purchasing power of the money that savers and investors have. The two main types of inflation are:- 1- Demand Pull Inflation- this occurs when the economy grows quickly and the aggregate demand (AD) increases at a faster
However, the fixed and low-income groups, such as workers, pensioners, teachers suffer from high inflation because their profits do not increase as fast as the prices of goods and services. (http://www.preservearticles.com/2011092213869/the-effects-of-inflation-on-different-groups-of-society-are-as-follows.html) Debtors and Creditors During the inflation, debtors are the gainers and creditors are the losers. The debtors are stand to gain because they had borrowed the money when pursuit power of money was highland, now return the loans when the purchasing power is low because of inflation. On the hand, the creditors suffer from inflation since they get back less products than what they had lent. Fixed and low income groups The fixed and low income groups are the worst suffers during inflation.
Wage increase requests go up • The increased inflation and reduced after-tax incomes can create a lot of wage demands 6. Increases government involvement/interference in the economy • Politically and practically, many consider this to be very undesirable Type of Tax 1. Consumption Tax A consumption tax is a tax on the money people spend, not the money people earn. Sales taxes, which state and local governments use to raise