Abstract
This
paper argues that inflation-targeting central banks should announce explicit
loss function with numerical relative weights on output-gap stabilization and
use and announce optimal time-varying instrument-rate paths and corresponding
inflation and output-gap forecasts. Simple voting procedures for forming the
Monetary Policy Committee’s aggregate loss function and time-varying
instrument-rate paths are suggested. Announcing an explicit loss function
improves the transparency of inflation targeting and eliminates some
misunderstandings of
the meaning of “flexible” inflation targeting. Using
time-varying instrument-rate paths avoids a number of inconsistencies and other
problems inherently associated with constant-interest-rate forecasts. In this
analyses mainly we describe general national inflation rate, food inflation
rate, non food inflation rate some reason, problems and solution of inflation
rate.
Introduction
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.
The
value of a dollar does not stay constant when there is inflation. The value of
a dollar is observed in terms of purchasing power, which are the real, tangible
goods that money can buy. When inflation goes up, there is a decline in the
purchasing power of money. For example, if the inflation rate is 2% annually,
then theoretically a $1 pack of gum will cost $1.02 in a year. After inflation,
your dollar can't buy the same goods it could beforehand.
Inflation
can mean either an increase in the money
supply or an increase in price levels. Generally, when we
hear about inflation, we are hearing about a rise in prices compared to some benchmark.
If the money supply has been increased, this will usually manifest itself in
higher price levels - it is simply a matter of time. For the sake of this
discussion, we will consider inflation as measured by the core Consumer
Price Index (CPI), which is the standard
measurement of inflation used in the U.S. financial markets. Core CPI excludes
food and energy from its formulas because these goods show more price
volatility than the remainder of the CPI.
Scope of the study
There
were huge scopes to work in the area of this Case Study. Considering the dead
line, and exposure of the paper has been wide-ranging. The study “A case Study
of Analysis
of inflation in Bangladesh” has covered overall scenario of macroeconomics situation of
Bangladesh. It has measured the living standard of mass people. We have a
chance to work on the economic variable used in modern economic world. By doing
the assignment, we are able to know that the importance of inflation to assess
how the people of the country living in. In the case study we have showed how
the above variables are inter related on each other.
Methodology
We
have used the concept of the course, information of the case study.
Sources
of Data
Here
the secondary sources of information were used. The secondary sources are:
Ø Books.
Ø Website.
Limitation
of the study
While
conducting the report on “A case Study of Analysis of inflation
in Bangladesh”, some
limitations were yet present there:
Ø Because of time shortage many related
area can’t be focused in depth.
Ø Website in different organization of
Bangladesh contains poor information.
Ø Recent data and information on
different activities was unavailable.
Ø Political violence
Definition
“Too
much money in circulation causes the money to lose value”-this is the true
meaning of inflation. The popular opinion about the costs of inflation is that
inflation makes everyone worse off by reducing the purchasing power of incomes,
eroding living standards and adding, in many ways, to life’s uncertainties.
In
economics, inflation is a rise in the general level of prices of goods and
services in an economy over a period of time. Inflation refers to a rise in
prices that causes the purchasing power of a nation to fall. Inflation is a
normal economic development as long as the annual percentage remains low; once
the percentage rises over a per-determined level, it is considered an inflation
crisis. In another word “Inflation means that your money won’t buy as much
today as you could yesterday”.
Definition
of Inflation rate (consumer prices)
This
entry furnishes the annual percent change in consumer prices compared with the previous
year's consumer prices. The inflation rate is the percentage rate of change of
a price index over time
General Inflation Rate from 2007-2013
Bangladesh Bureau
of Statistics (BBS) computes National Consumer Price Index (CPI) of national
general inflation by the consumers in their day-to-day life. The current CPI
has been constructed using 1995-96 as the base year. In order to construct the
price index, the commodity and weight of the index basket from the Household
Income and Expenditure Survey (HIES), 1995-96 are used. All rural and urban
price indices were compiled using the lists of consumer goods of rural and
urban households based on the survey. And finally, the national price index has
been computed by taking into account the weighted average of consumption
expenditures of the two areas. All indices are shown separately in food and
non-food groups which are again divided into a number of sub groups. Consumer
Price Index and inflation during FY 2006-07 to FY 2012-13 are shown in Table No
2.1
Table No: 2.1
Year
|
Inflation
rate (Consumer Price)
|
2006-07
|
7.2
|
2007-08
|
9.9
|
2008-09
|
6.6
|
2009-10
|
7.3
|
2010-11
|
8.8
|
2011-12
|
8.6
|
2012-13
|
7.14
|
Graph of Inflation
Graph
No: 2.1
The
rate of inflation (national) in FY 2007-2013 different types of value. During 2006-07
inflation rate is 7.2, 2007-08 inflation rate is 9.9 going up next year
inflation rate is 6.6going down then the next year going up. During 2007-08
inflation rate is high and during the 2008-09 inflation rate is lower.
Food Inflation Rate from 2007-2013
Bangladesh Bureau
of Statistics (BBS) computes National Consumer Price Index (CPI) using food by the
consumers in their day-to-day life. The current CPI has been constructed using
1995-96 as the base year. In order to construct the price index, the commodity
and weight of the index basket from the Household Income and Expenditure Survey
(HIES), 1995-96 are used. All rural and urban price indices were compiled using
the lists of consumer goods of rural and urban households based on the survey.
And finally, the national price index has been computed by taking into account
the weighted average of consumption expenditures of the two areas. All indices
are shown separately in food and non-food groups which are again divided into a
number of sub groups. Consumer Price Index and inflation during FY 2006-07 to
FY 2012-13 are shown in Table No 2.
Table No: 2.2
Year
|
Inflation
rate (Consumer Price)
|
2006-07
|
8.1
|
2007-08
|
12.2
|
2008-09
|
7.1
|
2009-10
|
8.5
|
2010-11
|
11.3
|
2011-12
|
7.7
|
2012-13
|
6.6
|
Graph
of food Inflation
Graph
No: 2.2
The
rate of inflation (national) in FY 2007-2013 stood different types of value.
Hear we can see easily how inflation rate of food is going up and down. In 2006-07 inflation rate is 8.1 and 2007-08
inflation rate 12.2 its going up and next year inflation rate is 7.1 is going
down. During 2007-08 food inflation was higher and 2012-13 is the lower.
Non
Food Inflation Rate from 2007-2013
Bangladesh Bureau
of Statistics (BBS) computes National Consumer Price Index (CPI) using non-food
by the consumers in their day-to-day life. The
current CPI has been constructed using 1995-96 as the base year. In order to
construct the price index, the commodity and weight of the index basket from
the Household Income and Expenditure Survey (HIES), 1995-96 are used. All rural
and urban price indices were compiled using the lists of consumer goods of
rural and urban households based on the survey. And finally, the national price
index has been computed by taking into account the weighted average of consumption
expenditures of the two areas. All indices are shown separately in food and
non-food groups which are again divided into a number of sub groups. Consumer
Price Index and inflation during FY 2006-07 to FY 2012-13 are shown in Table No
2.3
Table No: 2.3
Year
|
Inflation
rate (Consumer Price)
|
2006-07
|
5.9
|
2007-08
|
6.3
|
2008-09
|
5.9
|
2009-10
|
7.6
|
2010-11
|
6.2
|
2011-12
|
10.2
|
2012-13
|
10
|
Graph
of non-food Inflation
Graph
No: 2.3
The
rate of inflation (national) in FY 2007-2013 stood different types of value.
Hear we can see easily how inflation rate of food is going up and down. In 2006-07 inflation rate is 5.9 and 2007-08
inflation rate 6.3 its going up and next year inflation rate is 5.9 is going
down. During 2011-12 food inflation was higher and 2008-09 is the lower.
Causes of
inflation rate
Ø When
government print excess money
Ø When
raw materials price or transport cost increased the finished products price
also increased.
Ø When
labor cost or worker salary increased, the product cost also increased. So,
companies increased the product price
Ø When
there is a group of rich people who got black money or extra money, they can
increase the price of products by creating extra demand.
Problems of inflation rate
High
or unpredictable inflation rates are regarded as harmful to an overall economy.
They add inefficiencies in the market, and make it difficult for companies to
budget or plan long term. Inflation can act as a drag on productivity as
companies are forced to shift resources away from products and services in
order to focus on profit and losses from currency inflation. Uncertainty about
the future purchasing power of money discourages investment and saving and
inflation can impose hidden tax increases. In case of international trade,
‘Higher inflation in one economy than another will cause the first economy's
exports to become more expensive and affect the balance of trade’
Ø Businesses
lose because the cost of borrowed money - which they use to fund their growth -
increases.
Ø The
obvious losers are people with mortgages who have endured 12 consecutive rate
rises - plus some unpleasant little extra rises thrown in by the banks this
year. But renters also lose, as landlords squeezed by higher rates push up
their rents to recover some costs.
Ø Everyone loses
when interest rates raise - even those who think they are winners.
Ø Rising
inflation is the major reason cited for the ongoing interest rate rises.
Ø And
even those who have paid off their mortgage and have cash sitting in the bank
lose to some degree, thanks to the nasty effects of higher inflation.
Solution of inflation rate
Ø Reduce
interest and increase supply side factors. Massive import to offset demand.
Ø Increased
interest rates increase the cost of borrowing, discouraging consumers from
borrowing and spending.
Ø Increased
interest rates make it more attractive to save money
Ø Increased
interest rates reduce the disposable income of those with mortgages.
Ø Higher
interest rates increased the value of the exchange rate leading to lower
exports and more imports.
Ø To
reduce inflationary pressures the government can increase tax and reduce
government spending.
Ø Higher
interest rates (tightening monetary policy)
Ø Pull
demand down
Ø Reduce
the cost of production
Conclusion
After
completing this study we have learnt about inflation rate of Bangladesh. In our
country inflation rates highly relying on supply side and exchange rate.
Inflation is positively related with growth rate up to 7 percent after that it
gets negative. Above of the conclusion we discourse about some problem, causes
and solution. If we follow those solutions we can reduce our inflation rate.
References
Good job Dear......
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