.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
For the economy as a whole, demand pulled inflation refers to the price increases which results from an excess of demand over supply. It is a form of inflation and categorized by the four parts (households, businesses, governments and foreign buyers). When these parts want to purchase greater output than the economy can produce and we need more cash to buy the same amount of goods as before and the value of money falls, so they have to compete in order to purchase limited amounts of products and services. Generally, the demand-pulled inflation result from any factor that increases aggregate demand. Also, an increase in export and two factors controlled by the government are increases in the quantity of money and increases in government purchases
Thus increasing the prices and constancy the income dramatically, cause inflation which means increasing in the prices, decreasing in the purchasing power of money with increasing in the available currency, but not enough goods and services (The American Heritage, Published by Houghton Mifflin), thus inflation means increasing prices but with enough money but less goods and services; as a result, inflation can affect the objectives of the macroeconomic. One mainly of the objective is balance of trade and provide markets with enough supplies with suitable prices. Moreover inflation has many causes, a lot of consequences on the economy and society, but also inflation has some solution to figure it out in order to prevent its effects. Inflation has many reason to take place in Egypt. According to the National business “printing more money only adds to Egypt inflation”.
A high inflation will depreciate the domestic currency and an increase in inflation will increase the demand for foreign goods. It also decrease export, leading to balance of payment deficit. Hence, exchange rate on the foreign base countries currency will rise which appreciate the home base currency, (Madura, 2008). He also explained the relationship using the purchasing power parity. The theory of PPP states that a basket of a good in one country should have the same cost in another country, taking into account exchange
First are demand side policies which there are fiscal policy and monetary policy. Fiscal policy will increase income taxes to decrease disposable income, lower corporate taxes to cut back on investment and lower government spending. These will directly impact on aggregate demand to decrease the price level. For monetary policy government could increase interest rates and reduce the money supply. However, in the long run these will have an effect on unemployment that will rise up and getting even worse.
This signified as a drop and it reflected on the World oil price market that alerted countries to tighten energy product supplies due to slow oil production. It was stated that the Iranian revolution was the closest cause of the highest price in post – WWII history. However, it could be argued that the revolution’s impact on prices would be temporary and it boosts Iranian oil production after the revolution to four million barrels per day. At the same time Organization of Petroleum Exporting Countries was trimming output as well as the companies and governments started to build reserves. With the combination of those actions causes an upward surge on oil prices which escalated from $14 per barrel of the beginning of 1979 to more than $35 per barrel in 1981.
Income empirical studies have shown that in two decades since the first economic crisis in the 19th early 20th century the real disposable household income increased by an average of 1.7% a year in OECD countries. However there were differences in the pace of income growth among social classes. Today the average income distribution in OECD countries is at a ratio of 1 to 9 (richest 10% earn 9 times as much as the poorest 10%). The most common metric economists used to measure inequality in income distribution is the Gini coefficient which runs on a scale from zero to one, with zero indicating total equality and one indicating total inequality. The Gini coefficient is based on residents' net income representing a gap between rich and poor.
They occur when the monetary and fiscal authorities of a nation regularly issue large quantities of money to pay for a large sum of government expenditures. Once consumers realize what is happening, they expect inflation. This causes them to buy more now to avoid paying a high price later. Noting the prevalence, it skyrockets the demand out or proportion, causing inflation to spiral into hyperinflation. Hyperinflations are very large taxation schemes.
Economists differentiate between many types of inflation: Demand-Pull Inflation and Cost-Push Inflation. Both types of inflation cause an increase in the overall price level within an economy. The demand-pull inflation is when there is a rapid aggregate demand for goods and services, than rapid increase in the amount of money in the economy. Cost Push inflation is happens when there is a rapid increase wages of workers and prices of material used on production. Rising house money can cause inflation and printing more money, the money supply plays an important role in determining prices.
This is important because when a currency is not stable, prices are rising (inflation) or falling (deflation), and this may lead to distortion and undermine of the country 's long-term economic growth prospects. If inflation is too high, people will worry about their purchasing power of money balances. This will result to a bigger demand and needs for the real assets such as houses and properties, which is considered to be "inflation-proof". There would be less investment in production capacity of the