Objectives:  Significance  Basic Types of inflation.  Causes of inflation.  Impact of inlflation  Benefits of inflation  Short notes  Rates of inflation in Bangladesh

Significance Inflation means rise in price. - A rise in price in order to be inflation should be continuous. Inflation is percentage increase in price level. When most prices grow, there is inflation, provided the other prices do not drop heavily. - If inflation is not compensated by nominal increase of income, people become poorer.

Basic Types of Inflation Different types of inflation can have widely different determinants, effects and remedies. There is no strictly binding definition of ranges of intensity in price increase. Still some types are –  Hyperinflation  Extremely high inflation  Moderate inflation  Low inflation  Stagflation

Hyperinflation: It is the most extreme inflation phenomenon, with yearly price increases of three-digits percentage points and has an explosive acceleration. Extremely high inflation: It can range anywhere between 50%-100%. Whereas high inflation is a situation when price increase from 30% to 50% a year.

Moderate Inflation: It can be defined differently based on the different inflation histories around the world. Moderate inflation is between 5% to 25%-30%. Low Inflation: It is from 1%-2% to 5% price increase. A zero % inflation is price stability whereas below zero% causes deflation.

Stagflation: a rise in price accompanied by unemployment is called stagflation.

Causes of Inflation  Printing of too much money.  Deficit Financing- in 1991 Annual Development programme in Bangladesh, only 1% income was from tax and 99% loan the government borrowed with high rate of interest.  Business syndication- An unwritten agreement among some businessmen to control the whole supply of goods and services in the country.  Ineffective monetary policy- Non autonomous central bank.

 Low tax base.  Rise in oil price.  Low level of productivity.  Explosive growth in population.  Natural calamities.  Cost push inflation- Cost of raw materials or factors of production increases. This causes inflation even if the demand remains the same.

 Demand pull inflation- Rising demand on government spending, expenditures, consumption and investment increases the price level causing inflation when level of production remains same.

Impact of Inflation  Fixed income group and the poor are effected by inflation as with limited income the capital lowers and to purchase daily goods become expensive. Also the poor do not get proper medicine, health care and education that can eventually hamper their physical and mental life increasing poverty.  The export and import industries are hampered as export increase but import decreases due to devaluation of currency.

 Economic growth- Mild inflation is good for economic growth but high inflation decreases growth of the economy.

Benefits of Inflation  Business groups and the rich become very happy as rise in price level increases the profit level of the businessmen and the rich who have unlimited income are happy as they are sole consumers.  Debtors are extremely happy as due to inflation they are paid back in higher amount.

Short Notes Shoe leather cost: Frequent movement to the banks. Menu costs: Printing of too many menus in the hotels and restaurants.

Rates of Inflation in Bangladesh