Essay On Inflation Rate In Iran
After World War II the German economy lay in shambles. Yet, twenty years later its economy was envied by most of the world. And less than ten years after the war people already were talking about the German economic miracle. Today, Germany has one of the lowest inflation rates of the EU and thereby contributes to a strong European currency. On the other hand, Iran´s currency is the weakest in the world. Interestingly, Iran´s inflation rate was in comparison to Germany´s extraordinarily high with an average increase of 17% per year in the last 10 years alone. In these cases, it is obvious that a high inflation rate correlates with a weak currency. But in what way does the inflation rate influence the home currency. First of all, you have to acknowledge that exchange rates are usually subject to myriad of factors in trading. From market sentiment, cross-border trade, breaking economic news or investment flows. Interest rates or the inflation rate policy are usually reliable indicators for trends of exchange rates, too. In addition, relative inflation rates may affect the activity of international trade, thus influencing the demand for and supply of currencies and therefore affects exchange rates.
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Central banks attempt to limit inflation, and avoid deflation, in order to keep the economy running smoothly.
If there is more money circulating at a certain point of time, services and suppliers react by increasing their prices, resulting in a decrease of purchasing power of the currency. Accordingly, suppliers will adjust their prices downward, if money on the consumers side appears to be scarce. By doing so suppliers hope to attract buyers. The result of that is a deceleration of inflation and an increase of the money´s value in the
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