Showing posts with label what inflation is. Show all posts
Showing posts with label what inflation is. Show all posts

Sunday, 17 March 2019

Secrets about the Inflation government is hiding

In this post you gonna find out information about inflation,inflation-linked bonds, what is inflation, inflation calculator, inflation projection and many such topics, so let's discuss in detail, secrets about the inflation government is hiding

inflation

DEFINITION

Well inflation rate in economics in simple terms defined as the "General increment of price over time, resulting in the fall of the purchasing value of the money"

so the cost of living increases as the price of goods and services increase, hence inflation means your money can't buy as much as it could yesterday

WHAT IS INFLATION ??

Inflation is a measure of the rate at which average price level of a basket of certain goods and services increases over the period of time in a country, often expressed in percentage, it shows decreased purchasing power of a currency

then central bank of country, RBI (reserve bank of India) in case of India, takes necessary action to keep inflation in permissible measures and keep the economy running smoothly

inflation is measured in a variety of way depending upon the type of good and service considered, and its opposite of defletion when prices fall and the rate goes below zero

EXAMPLE

Imagine your grandma stuffed a 10 $ bill in her old wallet in 1975 and forgot about it, cost of gasoline at that time was 0.5 $ per gallon, means she could have bought then 20 gallons of gas with 10 $ note 

after 25 years in 2000, the price of gasoline is 1.6 $ per gallon, if she finds forgotten note in 2000, she can buy only 6.25 gallon with it, although note is same and unchanged but it lost its purchasing power by almost 69 %.

however it's not necessary that price always rises with time it may decline or remain unaltered, for instance, cost of wheat hit a highest at 11.05 $ per bushel during march 2008

by August 2016, it came down to 3.99 $ per bushel which is due to many factors such as good weather conditions led to greater productions, which means same currency note would buy lesser in 2008 and more in 2016.

this is called defletion 

inflation gives an idea or representation of a big number of goods and services over a period of time

CAUSES

Though it is due to the variety of factors, the main reason is rising prices, it is mainly classified into three categories: demand pull, cost push, built in

demand pull inflation occurs when overall demand of country rises rapidly than the country's production capacity, ultimately creating a demand-supply gap, which is adjusted by increasing the prices thereby reducing demand artificially

increasing money also increases inflation, more money means more the person can buy, hence it increases the demand and induces supply-demand imbalance which causes the rise of price

more money in the system can be caused by the main authority either by printing money or by giving away money this all lead to an increase in demand

cost push inflation is the result of the increase in the cost of production processes, examples include an increase in labor costs to manufacture a good or offer a service or escalation in the price of a raw material

this developments lead to higher cost for the finished product or service and contribute to inflation 

built-in inflation is the reason to adaptive expectations, as the price of goods and services escalatates, labor expects and demands costs to keep their cost of living unaltered, their escalated wages result in higher cost of good and services 



INFLATION RATE

Inflation refers to overall increment in consumer price index(CPI), which is the weighted average of prices for various goods .the bunch of goods that make up the index depends upon which are think of representative of a common consumption basket

therefore depending upon the country and consumption habits of the majority of the population, the index will comprise many goods, some goods might record drop of price whereas others may increase

inflation


thus the overall value of cpi will depend on the weight of each of the goods with respect to the whole basket, annual inflation refers to the percentage change of cpi compared to the same month of the  year prior to this



INFLATION LINKED BONDS 

Inflation-linked bonds are securities designed to help protect investors from inflation primarily issued by the sovereign government such as US and UK, IBS is indexed to inflation so that the principal and interest payments increase and decrease with the rate of inflation 

inflation is an economic term that describes the general rise in prices of consumer goods and service. to focus on real return the amount earned after adjusted for inflation, investments that target returns above the rate of inflation can protect and potentially increase investor's future purchasing power

inflation-linked bonds are designed to protect investors from the harmful impact of the inflation by contractually linking the bond's principal and interest payments to a nationally recognized inflation measure such as retail price index(RPI) in the UK.

The European harmonized index of consumer prices (HICP) Ex- tobacco in Europe and CPI in the US

An ILB's explicit link to nationally recognized inflation measure means that any escalation in price levels directly translates into higher principal values, as a hypothetical example, consider 1000 dollar 20 year US TIPS with a 2.5 % coupon, and an inflation rate of 4%

the principal on the TIPS note will adjust upwards on a daily basis to account for the 4% inflation, at maturity the principal value will be 2,208 $

while coupon rate remains fixed at 2.5 %, the dollar value of each interest payment will increase, as the coupon will be paid on the inflation-adjusted principal value

the first semiannual coupon of 1.25 % paid on the inflation-adjusted principal of 1020$ is 12.75 $ ,while the final semi-annual interest payment will be 1.25 % of the 2,208 $ .which is 27.60 $.

INFLATION PROJECTION

Inflation projection or inflation forecast is measured in terms of a consumer price index(CPI) or harmonized index of consumer prices for euro area countries, the euro area collectively and the united kingdom (UK). 

Inflation measures the general evolution of prices.it is defined as the change in prices of the basket of goods and services that are typically purchased by households.projections are based on assessments of the economic climate in individual countries and world economy

using a mixture of model-based analyses and expert judgment the indicator is expressed in annual growth rate

of India                                   https://www.statista.com/statistics/271322/inflation-rate-in-india/

INFLATION CALCULATOR

Inflation calculator can help you calculate future values based on an assumption of the inflation rate, this is also helpful for retirement planning, where you might require to decide on, how much money you can live on after retirement, use the inflation calculator of below-given link


INFLATION POUND CALCULATOR

Inflation pound calculator can be found by below-given link


INFLATION QUOTES

I don't mind going back to daylight saving time. with inflation, the hour will be the one and only thing I have saved all year

"the way to crush the bourgeoisie is to grind them in the millstones of taxation and inflation"

"Inflation is as violent as a mugger, as scary as an armed robber and as deadly as a hitman"

inflation is when you pay fifteen dollars for the ten dollar haircut you used to get for five dollars when you had those hair

it is a way to take people's wealth from them without having to raise taxes, inflation is the most universal tax of all



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