This document discusses inflation and deflation. It defines both concepts and provides types of inflation like hyperinflation. Causes of inflation and deflation are outlined. Examples of countries experiencing high inflation rates like Zimbabwe and historical hyperinflation events in Germany and Greece are examined. The costs of inflation are reviewed. Current inflation expectations and deflation challenges in Europe, Japan, and Finland are summarized. Policy options to address inflation are proposed.

1. Presenters
Afreh Kwame
Elisante Kimabo
Adeyemo Adewale
Ayodeji 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
rate
Hungary July 1946 1.30 x 1016% 195% 15.6 hours
Mid-November
Zimbabwe 2008 (latest 79,600,000,000,000 % 24.7 hours
98.0%
measurable)
1.4 days
Yugoslavia January 1994 313,000,000% 64.6%
Germany October 1923 29,500% 20.9% 3.7 days
Greece November 1944 11,300% 17.1% 4.5 days
China 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 can't even calculate inflation, the chief
statistician said on Tuesday(12.11.09)

11.  Zimbabwe's 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

13.  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.

14.  Persistent tendency
 General price level
 Goods and services
 Factors of production
 Fall

15. A decrease in money supply
 Increase in the supply of goods
 Fall in the demand for goods

16.  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.

17.  Companies will have difficulty increasing
profits
 companies effective burden from
borrowing money will increase
 With
job conditions
worsening, consumption will remain weak

18.  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 September's deflation rate of one per cent.

19.  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

20.  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 )