Inflation in Bangladesh and its Impact on Economic GrowthAkib Al Adib Pranto
Inflation in Bangladesh and its Impact on Economic Growth is a academic presentation slide made and uploaded by the student of Department of Finance, Jagannath University. Here we focus on inflation in Bangladesh, reasons of inflation in Bangladesh, effect of inflation in Bangladesh, and controlling process of inflation in Bangladesh.
Agenda:
1. What is Inflation.
2. Real life example
3. Causes of inflation
4. Effects of inflation on economy
5. Control Mechanism for inflation
6. Recent and past Inflation rate of Bangladesh
7. Reasons of inflation and measures taken to control inflation in
Bangladesh.
In these slides there is a basic introduction of inflation. It includes it's meaning, definition, types, causes, effects, control measures and present scenario of Rwandan Economy.
Inflation in Bangladesh and its Impact on Economic GrowthAkib Al Adib Pranto
Inflation in Bangladesh and its Impact on Economic Growth is a academic presentation slide made and uploaded by the student of Department of Finance, Jagannath University. Here we focus on inflation in Bangladesh, reasons of inflation in Bangladesh, effect of inflation in Bangladesh, and controlling process of inflation in Bangladesh.
Agenda:
1. What is Inflation.
2. Real life example
3. Causes of inflation
4. Effects of inflation on economy
5. Control Mechanism for inflation
6. Recent and past Inflation rate of Bangladesh
7. Reasons of inflation and measures taken to control inflation in
Bangladesh.
In these slides there is a basic introduction of inflation. It includes it's meaning, definition, types, causes, effects, control measures and present scenario of Rwandan Economy.
try the ppt of Tata Mutual Fund on deflation which is posted on slideshare try it its and easy to understand this ppt is also mix of that ppt and 2 more
Inflation & its Impact on Economy of PakistanMuhammad Hamza
Inflation & its Impact on Economy of Pakistan
Causes
Types
Effects
Current Challenges
How to Survive?
Factors in Pakistan
Impact on Economy of Pakistan
Recommendation
try the ppt of Tata Mutual Fund on deflation which is posted on slideshare try it its and easy to understand this ppt is also mix of that ppt and 2 more
Inflation & its Impact on Economy of PakistanMuhammad Hamza
Inflation & its Impact on Economy of Pakistan
Causes
Types
Effects
Current Challenges
How to Survive?
Factors in Pakistan
Impact on Economy of Pakistan
Recommendation
Question 1Response 1Development inside and out effects t.docxaudeleypearl
Question 1:
Response 1:
Development inside and out effects the entire country's economy. It impacts the managing body, regardless the clearly irrelevant subtleties in the average person's dependably life. Both a conditions and clear deferred results of how the economy is getting along, swelling has the two its fans and spoilers. Distinctive envisions that particular degrees of swelling are helpful for a prospering economy, yet that progressively critical rates raise concerns. It can degrade the money basically and, at logically lamentable, has been a key part to subsidences.
Swelling, as referenced, is the rate a worth ascensions, and fundamentally how much the dollar is worth at a given moment concerning checking. The idea behind swelling being an impact for good in the economy is that a reasonable enough rate can nudge financial movement without debasing the money so much that it ends up being basically vain (Kohn, 2006).
Swelling can in like manner falter from asset for asset. Subordinate upon the season, the expense of gas could go up independently from with everything considered headway as it routinely does as summer moves close. In reality, there is even a term - focus improvement - for swelling that parts in everything except for sustenance and imperativeness (gas and oil), as these regions have separate factors that add to them. There are a wide degree of sorts of swelling, subordinate upon what remarkable is being viewed comparatively as what the development rate truly is by all accounts. For example, what happens if the swelling rate is well over the Fed's normal goal? At a higher rate, yet still in the single digits, that is known as walking swelling. It is seen as concerning yet sensible (Ball, 2006).
Swelling is generally depicted reliant on its rate and causes. By and large, Inflation happens in an economy when vitality for thing and experiences outmaneuvers the supply of yield. in this manner, clarifications behind Inflation have different sides, the intrigue side and supply side. The widely inclusive activity of hazard premiums in driving enlargement pay over the scope of advancing years is dependable with secured budgetary improvement and inside and out oblige cash related procedure events in the moved economies. The degree for further fitting budgetary enabling seen with money related stars seems to have declined amidst the enough low advance charges and gigantic monetary records of national banks (Bodie, 2016).
In relentless time, the correspondence of perils has wound up being constantly phenomenal, the general point of view has lit up, and money related conditions have engaged on net. With the work superstar proceeding to reinforce, and GDP improvement expected to keep up a vital good ways from back in the consequent quarter, it likely will be fitting soon to change the affiliation supports rate. Likewise, if the economy propels as shown by the SEP concentrate way, the affiliation supports rate will probably app ...
1. Definition
2. Variations of Inflation
3. Calculation of Inflation
4. Keynisian view of Inflation/Causes of Inflation
5. Effects of Inflation
6. Methods to Control Inflation
7. Is inflation good or bad?
8. Inflation and GDP
Comparative Longitudinal Analysis on Global Inflation with a special emphasis...Ram Sharma
https://zenodo.org/record/7939068#.ZGQTS_dX6Ef
This is the presentation for the research “Comparative Longitudinal Analysis on Global Inflation with a special emphasis on Indian Economy” presented at the Second International Conference at the Daly College of Business Management, DAVV Indore.
The research was further published in its peer to peer reviewed conference journal.
The economic fluctuations in Indian housing markets have been time and again proved to be led by inflation (Granger Cause) (Richa Pandey & V. Mary Jessica, 2020).
The purpose of this study is to perform a comparative longitudinal analysis on Global Inflation with a special emphasis on Indian Economy.
The study aims to observe the positive cause-effect relationship between the rise of money supply and circulation in the economy and the succeeding rise in housing prices.
As Gregory Wolfe theorised, “The inflation of our time is intimately connected with some of its most obdurate ideas, forces, postulates, and institutions and can be overcome only by influencing these profound causes and conditions. It is not just a disorder of the monetary system which can be left to financial experts to redress, it is a moral disease, a disorder of society. This inflation, too, belongs to the things which can be understood and remedied only in the area beyond supply and demand.”
Friedman’s permanent income hypothesis suggests that people would change their desired consumption if changes in housing prices affect their expected lifetime wealth. Moreover, an inflationary housing market can be termed essentially, as one of the most major contributors to a nation’s overall inflation (Jared Bernstein, Ernie Tedeschi, and Sarah Robinson, 2021).
A comparative longitudinal analysis on inflation can provide significant insights into the evolution of prices over time. By comparing inflation rates across different countries, researchers can identify patterns and commonalities that can help explain the underlying causes of inflation.
Additionally, by looking at inflation over a long period of time, this research can help economists, administrators and businesses in identifying periods of high and low inflation to investigate the factors that may have contributed to these changes. In general, inflation is defined as a sustained increase in the price level of goods and services in an economy.
Over time, inflation can erode the purchasing power of a currency, as prices for goods and services rise faster than the currency’s value. There are a variety of factors that can contribute to inflation, including increases in the cost of production, changes in monetary policy, and demand-side pressures.
https://zenodo.org/record/7942937#.ZGQQyPdX6Ed
A corporate university is any educational entity that is a strategic tool designed to assist its parent organization in achieving its goals by conducting activities that foster individual and organizational learning and knowledge
In this work, the performances of a solar cell based on InGaN were simulated under the illumination conditions of one sun by employing SILVACO software.
Falcon stands out as a top-tier P2P Invoice Discounting platform in India, bridging esteemed blue-chip companies and eager investors. Our goal is to transform the investment landscape in India by establishing a comprehensive destination for borrowers and investors with diverse profiles and needs, all while minimizing risk. What sets Falcon apart is the elimination of intermediaries such as commercial banks and depository institutions, allowing investors to enjoy higher yields.
how to sell pi coins in all Africa Countries.DOT TECH
Yes. You can sell your pi network for other cryptocurrencies like Bitcoin, usdt , Ethereum and other currencies And this is done easily with the help from a pi merchant.
What is a pi merchant ?
Since pi is not launched yet in any exchange. The only way you can sell right now is through merchants.
A verified Pi merchant is someone who buys pi network coins from miners and resell them to investors looking forward to hold massive quantities of pi coins before mainnet launch in 2026.
I will leave the telegram contact of my personal pi merchant to trade with.
@Pi_vendor_247
how can I sell my pi coins for cash in a pi APPDOT TECH
You can't sell your pi coins in the pi network app. because it is not listed yet on any exchange.
The only way you can sell is by trading your pi coins with an investor (a person looking forward to hold massive amounts of pi coins before mainnet launch) .
You don't need to meet the investor directly all the trades are done with a pi vendor/merchant (a person that buys the pi coins from miners and resell it to investors)
I Will leave The telegram contact of my personal pi vendor, if you are finding a legitimate one.
@Pi_vendor_247
#pi network
#pi coins
#money
when will pi network coin be available on crypto exchange.DOT TECH
There is no set date for when Pi coins will enter the market.
However, the developers are working hard to get them released as soon as possible.
Once they are available, users will be able to exchange other cryptocurrencies for Pi coins on designated exchanges.
But for now the only way to sell your pi coins is through verified pi vendor.
Here is the telegram contact of my personal pi vendor
@Pi_vendor_247
what is the future of Pi Network currency.DOT TECH
The future of the Pi cryptocurrency is uncertain, and its success will depend on several factors. Pi is a relatively new cryptocurrency that aims to be user-friendly and accessible to a wide audience. Here are a few key considerations for its future:
Message: @Pi_vendor_247 on telegram if u want to sell PI COINS.
1. Mainnet Launch: As of my last knowledge update in January 2022, Pi was still in the testnet phase. Its success will depend on a successful transition to a mainnet, where actual transactions can take place.
2. User Adoption: Pi's success will be closely tied to user adoption. The more users who join the network and actively participate, the stronger the ecosystem can become.
3. Utility and Use Cases: For a cryptocurrency to thrive, it must offer utility and practical use cases. The Pi team has talked about various applications, including peer-to-peer transactions, smart contracts, and more. The development and implementation of these features will be essential.
4. Regulatory Environment: The regulatory environment for cryptocurrencies is evolving globally. How Pi navigates and complies with regulations in various jurisdictions will significantly impact its future.
5. Technology Development: The Pi network must continue to develop and improve its technology, security, and scalability to compete with established cryptocurrencies.
6. Community Engagement: The Pi community plays a critical role in its future. Engaged users can help build trust and grow the network.
7. Monetization and Sustainability: The Pi team's monetization strategy, such as fees, partnerships, or other revenue sources, will affect its long-term sustainability.
It's essential to approach Pi or any new cryptocurrency with caution and conduct due diligence. Cryptocurrency investments involve risks, and potential rewards can be uncertain. The success and future of Pi will depend on the collective efforts of its team, community, and the broader cryptocurrency market dynamics. It's advisable to stay updated on Pi's development and follow any updates from the official Pi Network website or announcements from the team.
Falcon stands out as a top-tier P2P Invoice Discounting platform in India, bridging esteemed blue-chip companies and eager investors. Our goal is to transform the investment landscape in India by establishing a comprehensive destination for borrowers and investors with diverse profiles and needs, all while minimizing risk. What sets Falcon apart is the elimination of intermediaries such as commercial banks and depository institutions, allowing investors to enjoy higher yields.
Even tho Pi network is not listed on any exchange yet.
Buying/Selling or investing in pi network coins is highly possible through the help of vendors. You can buy from vendors[ buy directly from the pi network miners and resell it]. I will leave the telegram contact of my personal vendor.
@Pi_vendor_247
If you are looking for a pi coin investor. Then look no further because I have the right one he is a pi vendor (he buy and resell to whales in China). I met him on a crypto conference and ever since I and my friends have sold more than 10k pi coins to him And he bought all and still want more. I will drop his telegram handle below just send him a message.
@Pi_vendor_247
how can I sell pi coins after successfully completing KYCDOT TECH
Pi coins is not launched yet in any exchange 💱 this means it's not swappable, the current pi displaying on coin market cap is the iou version of pi. And you can learn all about that on my previous post.
RIGHT NOW THE ONLY WAY you can sell pi coins is through verified pi merchants. A pi merchant is someone who buys pi coins and resell them to exchanges and crypto whales. Looking forward to hold massive quantities of pi coins before the mainnet launch.
This is because pi network is not doing any pre-sale or ico offerings, the only way to get my coins is from buying from miners. So a merchant facilitates the transactions between the miners and these exchanges holding pi.
I and my friends has sold more than 6000 pi coins successfully with this method. I will be happy to share the contact of my personal pi merchant. The one i trade with, if you have your own merchant you can trade with them. For those who are new.
Message: @Pi_vendor_247 on telegram.
I wouldn't advise you selling all percentage of the pi coins. Leave at least a before so its a win win during open mainnet. Have a nice day pioneers ♥️
#kyc #mainnet #picoins #pi #sellpi #piwallet
#pinetwork
how to sell pi coins effectively (from 50 - 100k pi)DOT TECH
Anywhere in the world, including Africa, America, and Europe, you can sell Pi Network Coins online and receive cash through online payment options.
Pi has not yet been launched on any exchange because we are currently using the confined Mainnet. The planned launch date for Pi is June 28, 2026.
Reselling to investors who want to hold until the mainnet launch in 2026 is currently the sole way to sell.
Consequently, right now. All you need to do is select the right pi network provider.
Who is a pi merchant?
An individual who buys coins from miners on the pi network and resells them to investors hoping to hang onto them until the mainnet is launched is known as a pi merchant.
debuts.
I'll provide you the Telegram username
@Pi_vendor_247
USDA Loans in California: A Comprehensive Overview.pptxmarketing367770
USDA Loans in California: A Comprehensive Overview
If you're dreaming of owning a home in California's rural or suburban areas, a USDA loan might be the perfect solution. The U.S. Department of Agriculture (USDA) offers these loans to help low-to-moderate-income individuals and families achieve homeownership.
Key Features of USDA Loans:
Zero Down Payment: USDA loans require no down payment, making homeownership more accessible.
Competitive Interest Rates: These loans often come with lower interest rates compared to conventional loans.
Flexible Credit Requirements: USDA loans have more lenient credit score requirements, helping those with less-than-perfect credit.
Guaranteed Loan Program: The USDA guarantees a portion of the loan, reducing risk for lenders and expanding borrowing options.
Eligibility Criteria:
Location: The property must be located in a USDA-designated rural or suburban area. Many areas in California qualify.
Income Limits: Applicants must meet income guidelines, which vary by region and household size.
Primary Residence: The home must be used as the borrower's primary residence.
Application Process:
Find a USDA-Approved Lender: Not all lenders offer USDA loans, so it's essential to choose one approved by the USDA.
Pre-Qualification: Determine your eligibility and the amount you can borrow.
Property Search: Look for properties in eligible rural or suburban areas.
Loan Application: Submit your application, including financial and personal information.
Processing and Approval: The lender and USDA will review your application. If approved, you can proceed to closing.
USDA loans are an excellent option for those looking to buy a home in California's rural and suburban areas. With no down payment and flexible requirements, these loans make homeownership more attainable for many families. Explore your eligibility today and take the first step toward owning your dream home.
how to sell pi coins on Bitmart crypto exchangeDOT TECH
Yes. Pi network coins can be exchanged but not on bitmart exchange. Because pi network is still in the enclosed mainnet. The only way pioneers are able to trade pi coins is by reselling the pi coins to pi verified merchants.
A verified merchant is someone who buys pi network coins and resell it to exchanges looking forward to hold till mainnet launch.
I will leave the telegram contact of my personal pi merchant to trade with.
@Pi_vendor_247
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NO1 Uk Divorce problem uk all amil baba in karachi,lahore,pakistan talaq ka m...
Inflation and Its Effect on Bangladesh
1. 1 | P a g e
Chapter One
Inflation
1.1 Introduction
During World War II, you could buy a loaf of bread for $0.15, a new car for less than $1,000 and
an average house for around $5,000. In the twenty-first century, bread, cars, houses and just
about everything else cost more. A lot more. Clearly, we’ve experienced a significant amount of
inflation over the last 60 years.
When inflation surged to double-digit levels in the mid- to late-1970s, Americans declared it
public enemy No.1. Since then, public anxiety has abated along with inflation, but people remain
fearful of inflation, even at the minimal levels we’ve seen over the past few years. Although it’s
common knowledge that prices go up over time, the general population doesn’t understand the
forces behind inflation.
1.2 What is Inflation?
Inflation is defined as a sustained increase in the general level of prices for goods and services. It
is measured as an annual percentage increase. As inflation rises, every dollar you own buys a
smaller percentage of a good or service.
1.3 Causes of Inflation
Economists wake up in the morning hoping for a chance to debate the causes of inflation as it has
a great effect on economy. There is no one cause that’s universally agreed upon, but at least two
theories are generally accepted:
(i) Demand-Pull Inflation – This theory can be summarized as “too much money
chasing too few goods”. In other words, if demand is growing faster than supply,
prices will increase. This usually occurs in growing economies.
(ii) Cost-Push Inflation – When companies’ costs go up, they need to increase prices to
maintain their profit margins. Increased costs can include things such as wages, taxes,
or increased costs of imports.
2. 2 | P a g e
1.4 Costs of Inflation
Almost everyone thinks inflation is evil, but it isn’t necessarily so. Inflation affects different
people in different ways. It also depends on whether inflation is anticipated or unanticipated. If
the inflation rate corresponds to what the majority of people are expecting (anticipated inflation),
then we can compensate and the cost isn’t high. For example, banks can vary their interest rates
and workers can negotiate contracts that include automatic wage hikes as the price level goes up.
Problems arise when there is unanticipated inflation:
Creditors lose and debtors gain if the lender does not anticipate inflation correctly. For
those who borrow, this is similar to getting an interest-free loan.
Uncertainty about what will happen next makes corporations and consumers less likely to
spend. This hurts economic output in the long run.
People living off a fixed-income, such as retirees, see a decline in their purchasing power
and, consequently, their standard of living.
The entire economy must absorb re-pricing costs (“menu costs”) as price lists, labels,
menus and more have to be updated.
If the inflation rate is greater than that of other countries, domestic products become less
competitive.
People like to complain about prices going up, but they often ignore the fact that wages should
be rising as well. The question shouldn’t be whether inflation is rising, but whether it’s rising at a
quicker pace than your wages.
Finally, inflation is a sign that an economy is growing. In some situations, little inflation (or even
deflation) can be just as bad as high inflation. The lack of inflation may be an indication that the
economy is weakening. As you can see, it’s not so easy to label inflation as either good or bad –
it depends on the overall economy as well as your personal situation.
1.5 Measures against inflation
The price situation in Bangladesh, like the case with many other developing countries, has, of
late, come under a fresh upward pressure. Its inflationary rate, as measured by consumers’ price
index (CPI) has, thus, crept up. The official inflation rate, which is now coming closer to double
digits, has prompted the country’s central bank, Bangladesh Bank (BB), to go for slowing down
of monetary growth to tame the price pressure. The BB is likely to continue its tight monetary
3. 3 | P a g e
policies to help keep inflation at bay. The BB hiked last week the cash reserve requirement
(CRR) for banks. Further squeeze in the statutory liquidity reserve (SLR) cannot be ruled out.
For the central bank, this is otherwise a rational course of action.
Yet then, the question remains whether application of monetary policies like the above in a
clinical fashion, would alone be effective in the Bangladesh context. For, the economy of this
country does not operate on a framework of textbook theories that say that inflation reflected in
rising prices of goods and services has too intimate a relationship with increased money supply –
that creates demand which cannot be met under conditions of scarcity of existing stocks of goods
and services. Thus, prices are driven up. If it were so easy to control the effects of what is
understood as inflation — rising prices and charges — in the Bangladesh situation, then BB’s
monetary policies of limiting inflation through monetary tools would have earlier paid off well.
On its part, the BB has otherwise been neither too tight-fisted in reducing money supply — to
ensure that legitimate needs of credits could be met for the economy’s expansion — nor too
reckless by being liberal in allowing the growth of money. It has been pursuing balanced
monetary policies over the years. But that has not paid the desired dividends; tighter policies
have not proved to be effective. Factors at work need to be traced for this. Such factors are not
all within the bounds of rational economic theories. Price escalations of commodities or hiking
up charges of services in many cases — and rather on a regular basis — are largely considered to
be caused by simple profiteering instincts, market imperfections of diverse sorts, lack of timely
policy-related actions or interventions on the part of the government etc. There are a large
number of essential commodities over the selling of which effective price monitoring,
appropriate policies to encourage supply-side responses and other accompanying measures from
the side of the government, have not been in place in a proper form and setting.
In this backdrop, the BB will have to be more agile and should act promptly even in the realm of
the supervision of the monetary affairs of the country. For instance, credible reports have
appeared in the media to the effect that a great deal of money, lent out from the banks over
nearly the last one year or more, have not gone into productive ventures or into industrialization
but to the country’s volatile stock market. In this situation, it is certainly no wonder that
inflationary pressure have been running strong.
Higher inflation does not, of course, signal proper economic management. The bringing down of
the rate of inflation is tantamount to removing maladies in the country such as institutional
4. 4 | P a g e
weaknesses, lack of expected improvements in promoting good governance, irregularities, funds
misappropriated or not utilized or utilized for wrong purposes, not increasing production and
even misdirected subsidies in some cases. Both economic and non-economic factors are involved
here. Hence, these all need to be properly addressed, if inflationary pressures are to be effectively
tamed.
1.6 Inflation Rate Definition
In mainstream economics, the word “inflation” refers to a general rise in prices measured against
a standard level of purchasing power. Previously the term was used to refer to an increase in the
money supply, which is now referred to as expansionary monetary policy or monetary inflation.
Inflation is measured by comparing two sets of goods at two points in time, and computing the
increase in cost not reflected by an increase in quality. There are, therefore, many measures of
inflation depending on the specific circumstances.
The most well known are the CPI which measures consumer prices, and the GDP deflator, which
measures inflation in the whole of the domestic economy. The prevailing view in mainstream
economics is that inflation is caused by the interaction of the supply of money with output and
interest rates. Mainstream economist views can be broadly divided into two camps: the
“monetarists” who believe that monetary effects dominate all others in setting the rate of
inflation, and the “Keynesians” who believe that the interaction of money, interest and output
dominate over other effects. Other theories, such as those of the Austrian school of economics,
believe that an inflation of overall prices is a result from an increase in the supply of money by
central banking authorities.
5. 5 | P a g e
Chapter Two
Inflation and Its Effect on Bangladesh
2.1 Bangladesh Inflation Rate: 1994-2016 | Data | Chart | Forecast
Consumer prices in Bangladesh increased 5.53 percent year-on-year in June of 2016, following
5.45 percent growth in the previous month. Food prices rose 4.23 percent (+3.81 percent in May)
and non-food went up 7.5 percent (+7.92 percent). It stays well below the government's target of
6.2 percent. Inflation Rate in Bangladesh averaged 6.65 percent from 1994 until 2016, reaching
an all time high of 16 percent in September of 2011 and a record low of -0.03 percent in
December of 1996. Inflation Rate in Bangladesh is reported by the Bangladesh Bureau of
Statistics.
Jul'14 Nov'14 Apr'15 Sep,15 Feb'16 Jun'16
0
1
2
3
4
5
6
7 BD Inflation Rate
PercentageOfInflationRate,%
Time Scale
Figure 2.1: Inflation Rate of Bangladesh (Time scale vs Percentage)
6. 6 | P a g e
Actual Previous Highest Lowesr Dates Unit Frequency
5.53 5.45 16.00 -0.03 1994-2016 Percent Monthly 2005/06=100, NSA
In Bangladesh, the most important categories in the consumer price index are food, non-
alcoholic beverages and tobacco (59 percent of the total weight) and gross rent, fuel and lighting
(16.9 percent). The index also includes: clothing and footwear (6.9 percent); transport and
communication (4.2 percent), recreation, entertainment, education & cultural services (4.1
percent); miscellaneous goods and services (3.6 percent); medical care and health expenses (2.8
percent) and furnishing (2.7 percent). This provides the latest reported value for - Bangladesh
Inflation Rate - plus previous releases, historical high and low, short-term forecast and long-term
prediction, economic calendar, survey consensus and news. Bangladesh Inflation Rate - actual
data, historical chart and calendar of releases - was last updated on August of 2016.
Bangladesh Prices Last Previous Highest Lowest Unit
Inflation Rate 5.53 5.45 16.00 -0.03 percent
Consumer Price Index CPI 220.74 220.15 223.37 51.99 Index Points
GDP Deflator 174.42 174.42 224.46 126.35 percent
Producer Prices 2180.00 2082.00 2180.00 1233.00 Index Points
Export Prices 182.34 172.09 182.34 78.90 Index Points
Import Prices 211.90 200.37 211.90 89.90 Index Points
Inflation Rate Mom -1.44 0.05 2.08 -1.44 percent
Food Inflation 4.23 3.81 9.09 3.77 percent
Cpi Transportation 205.88 205.80 206.44 131.01 Index Points
7. 7 | P a g e
2.2 Effect on the Economy:
Figure 2.2: Classification of Inflation Effect
2.2.1 General Effect
An increase in the general level of prices implies a decrease in the purchasing power of the
currency. That is, when the general level of prices rises, each monetary unit buys fewer goods
and services. Increases in the price level (inflation) erode the real value of money (the functional
currency) and other items with an underlying monetary nature (e.g. loans and bonds).
For example if one takes a loan where the stated interest rate is 6% and the inflation rate is at
3%, the real interest rate that one are paying for the loan is 3%. It would also hold true that if one
had a loan at a fixed interest rate of 6% and the inflation rate jumped to 20%one would have a
real interest rate of -14%
2.2.2 Negative effects of inflation
The main negative effects of inflation are: (1) It redistributes income from people on fixed
incomes (that do not rise with inflation) to people on variable incomes (that do rise with
inflation). Since most people with fixed incomes are poor (for example, receive social benefits
that do not rise in line with inflation), and people with variable incomes are relatively richer, the
effect of income is to redistribute income from the poor to the rich. (2) Inflation erodes
international competitiveness. Exports cost more abroad. This can cause a decrease in demand
for exports. That in turn can lead to a decrease in demand for the currency and to a devaluation
8. 8 | P a g e
of the currency. The devaluation may restore exports, but at the cost of making imports more
expensive, thus increasing inflation again! It is because inflation erodes international
competitiveness that most governments make controlling inflation the central pillar of their
economic policy.
2.2.3 Positive effects of inflation:
(i) Labor-market adjustments
Keynesians believe that nominal wages are slow to adjust downwards. This can lead to
prolonged disequilibrium and high unemployment in the labor market. Since inflation would
lower the real wage if nominal wages are kept constant, Keynesians argue that some inflation is
good for the economy, as it would allow labor markets to reach equilibrium faster.
(ii) Room to maneuver:
The primary tools for controlling the money supply are the ability to set the discount rate, the
rate at which banks can borrow from the central bank, and open market operations which are the
central bank’s interventions into the bonds market with the aim of affecting the nominal interest
rate. If an economy finds itself in a recession with already low, or even zero, nominal interest
rates, then the bank cannot cut these rates further (since negative nominal interest rates are
impossible) in order to stimulate the economy – this situation is known as a liquidity trap. A
moderate level of inflation tends to ensure that nominal interest rates stay sufficiently above zero
so that if the need arises the bank can cut the nominal interest rate.
(iii) Mundell-Tobin effect:
The Nobel laureate Robert Mundell noted that moderate inflation would induce savers to
substitute lending for some money holding as a means to finance future spending. That
substitution would cause market clearing real interest rates to fall. The lower real rate of interest
would induce more borrowing to finance investment. In a similar vein, Nobel laureate James
Tobin noted that such inflation would cause businesses to substitute investment in physical
capital (plant, equipment, and inventories) for money balances in their asset portfolios. That
substitution would mean choosing the making of investments with lower rates of real return.
(The rates of return are lower because the investments with higher rates of return were already
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being made before.) The two related effects are known as the Mundell-Tobin effect. Unless the
economy is already overinvesting according to models of economic growth theory, that extra
investment resulting from the effect would be seen as positive.
(iv) Instability with Deflation:
Economist S.C. Tsaing noted that once substantial deflation is expected, two important effects
will appear; both a result of money holding substituting for lending as a vehicle for saving. The
first was that continually falling prices and the resulting incentive to hoard money will cause
instability resulting from the likely increasing fear, while money hoards grow in value, that the
value of those hoards are at risk, as people realize that a movement to trade those money hoards
for real goods and assets will quickly drive those prices up. Any movement to spend those
hoards “once started would become a tremendous avalanche, which could rampage for a long
time before it would spend itself.” Thus, a regime of long-term deflation is likely to be
interrupted by periodic spikes of rapid inflation and consequent real economic disruptions.
Moderate and stable inflation would avoid such a seesawing of price movements.
(v) Financial Market Inefficiency with Deflation:
The second effect noted by Tsaing is that when savers have substituted money holding for
lending on financial markets, the role of those markets in channeling savings into investment is
undermined. With nominal interest rates driven to zero, or near zero, from the competition with a
high return money asset, there would be no price mechanism in whatever is left of those markets.
With financial markets effectively euthanized, the remaining goods and physical asset prices
would move in perverse directions. For example, an increased desire to save could not push
interest rates further down (and thereby stimulate investment) but would instead cause additional
money hoarding, driving consumer prices further down and making investment in consumer
goods production thereby less attractive. Moderate inflation, once its expectation is incorporated
into nominal interest rates, would give those interest rates room to go both up and down in
response to shifting investment opportunities, or savers’ preferences, and thus allow financial
markets to function in a more normal fashion.
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Chapter Three
Concluding Remarks
3.1 Conclusion
This present the very recent insight of Bangladesh - inflation and its effects. It is clear that
inflation isn’t intrinsically good or bad. Like so many things in life, the impact of inflation
depends on present situation.
Some points to remember:
Inflation is a sustained increase in the general level of prices for goods and services.
When inflation goes up, there is a decline in the purchasing power of money.
Variations on inflation include deflation, hyperinflation and stagflation.
Two theories as to the cause of inflation are demand-pull inflation and cost-push
inflation.
When there is unanticipated inflation, creditors lose, people on a fixed-income lose,
“menu costs” go up, uncertainty reduces spending and exporters aren’t as competitive.
Lack of inflation (or deflation) is not necessarily a good thing.
Inflation is measured with a price index.
The two main groups of price indexes that measure inflation are the Consumer Price
Index and the Producer Price Indexes.
Interest rates are decided in the U.S. by the Federal Reserve. Inflation plays a large
role in the Fed’s decisions regarding interest rates.
In the long term, stocks are good protection against inflation.
Inflation is a serious problem for fixed income investors. It’s important to understand
the difference between nominal interest rates and real interest rates.
Inflation-indexed securities offer protection against inflation but offer low returns.