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Inflation _deflation

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  • 1. Presenters Afreh Kwame Elisante Kimabo Adeyemo AdewaleAyodeji Sunday Abel
  • 2.  Definition of Inflation Types of Inflation Causes of Inflation Cost of Inflation Inflation in a country like Zimbabwe Inflation expectation in Europe Definition Deflation Causes of Delation Deflation Japan and Finland Conclusion
  • 3.  Persistent Appreciable increase General price level Goods and services Factors of production OR Too much money chasing few goods Inflation is an essentially monetary phenomenon.
  • 4.  Suppressed Inflation Creeping Inflation Strato-Inflation Hyper-Inflation/Galloping Inflation Staflation Bottleneck Inflation
  • 5.  When the inflation rate accelerate to several hundreds to many thousands per cent per day, then we have hyper-inflation. Hyperinflation usually occur in a political crisis when a weak government loses control of the economy and turns to printing or borrowing money to pay its debts. Examples of countries with this type of inflation are; Germany in 1923 when the rate of inflation hit 3.25 × 106 percent per month (prices double every 49 hours) Greece during its occupation by German troops (1941-1944) with 8.55 × 109 percent per month (prices double every 28 hours).
  • 6.  The most severe known incident of inflation was in Hungary after the end of World War II at 4.19 × 1016 percent per month (prices double every 15 hours). More recently, Yugoslavia suffered 5 × 1015 percent inflation per month (prices double every 16 hours) between October 1, 1993 And January 24, 1994. Zimbabwe
  • 7. Country Month with Highest monthly Equival Time highest inflation rate ent required inflation rate daily for prices inflation to double rateHungary July 1946 1.30 x 1016% 195% 15.6 hours Mid-NovemberZimbabwe 2008 (latest 79,600,000,000,000 % 24.7 hours 98.0% measurable) 1.4 daysYugoslavia January 1994 313,000,000% 64.6%Germany October 1923 29,500% 20.9% 3.7 daysGreece November 1944 11,300% 17.1% 4.5 daysChina May 1949 4,210% 13.4% 5.6 days
  • 8.  Demand-Pull Inflation: As a results of an increase in aggregate demand. Supply or Cost-Pull Inflation: Resulting from a reduction or a decrease in aggregate supply.
  • 9.  Distributional effects e.g weaker social groups in society such as pensioners on fixed income lose and also between borrowers and lenders Breakdown in the functions of money. ”Shoe leather” and ”menu cost” Foreign trade It is difficult to renegotiate some prices, and particularly wages.
  • 10.  ZIMBABWE’S chart topping inflation reportedly at 24,000 % qualifies the nation as experiencing hyper inflation. Zimbabwe’s hyper-Inflation is a result of the monetary authority irresponsibly borrowing money to pay all its expenses and funding quasi-fiscal activities. ZIMBABWE is so short on consumer goods, the government cant even calculate inflation, the chief statistician said on Tuesday(12.11.09)
  • 11.  Zimbabwes inflation -- already the highest in the world -- hit 7,634.8 percent. The Zimbabwe dollar has strengthened against the U.S. dollar on the black market, rising to Z$1.5 million per dollar on Tuesday from a low of ZW$2.4 million. Scenario:"I came here at five (0300 GMT) and just got ZW$5 million. What can I do with that money," an angry mother of two who identified herself only as Auxilia said as she left a bank where a long queue stretched for a couple of blocks. The amount is equivalent to three days of bus fare
  • 12.  Zimbabwean Central Bank to introduced new currency Salaries are falling to keep pace with galloping inflation. Government introduced price controls Devaluation of the Zimbabwe dollar A reduction of lending rates Incentives for the manufacturing Mining sectors to stimulate exports.
  • 13.  Persistent tendency General price level Goods and services Factors of production Fall
  • 14. A decrease in money supply Increase in the supply of goods Fall in the demand for goods
  • 15.  Deepening deflation will prompt the Bank of Japan to keep interest rates near zero. Japan is suffering severe deflation, primarily because of the yen’s sharp rise and the downturn in world trade. Joblessness is rising at a record rate Analysts expect deflation to accelerate to a record rate in coming months as the worst global recession in 60 years forces companies to cut prices, on top of sharp falls in commodity prices.
  • 16.  Companies will have difficulty increasing profits companies effective burden from borrowing money will increase With job conditions worsening, consumption will remain weak
  • 17.  In 2008, CPI rose by 3.5% and on average by 4.1% from the previous year. Prices of goods and services are still being depressed by lowered interest rates as well as house and fuel prices. Prices of items like foodstuffs, rented housing and restaurant and cafe’ products are expected to rise more sharply than others. The CPI annual average will rise by no more than o.1% and in december 2009 prices may actually be lower than one year earlier. Just last Friday, Finnish consumer prices shrank by 1.5 per cent in October, compared with Septembers deflation rate of one per cent.
  • 18.  Inflationrate can be controlled by the following policies Monetary policy open market operation Increase in reserve requirement Special deposit Increase bank rate demonetisation Fiscal policy High income tax/increase direct tax
  • 19.  http://www.newzimbabwe.com/pages/inflati on180.17386.html Article by Prof. Steve H. Hanke, February 5, 2009. http://www.cato.org/zimbabwe Finnish economic outlook for 2009 A handout on macroeconomics by Prof. Lawrence Adu Kofi(University of Cape Coast, Ghana )