In the previous post, Economic Situation, for the next few years, I predicted that inflation would be more likely to increase, and this time I would like to share a section on inflation and its direct effects.
Inflation is a decrease in the purchasing power of a currency. For example, if you used to be able to buy an item for 100 kyats, but if the inflation rate is 10% per annum, you will have to buy the same item for 100 kyats next year. In other words, an inflation rate of 10% means that the purchasing power of the currency is reduced by 10% every year.
For example, when I was a student, I remember buying a bowl of noodles for 2 kyats. But at present, a bowl of noodles costs at least 500 kyats, so in a few decades, it will be worth the money. You can imagine how many times your purchasing power has dropped.
Is inflation in your own country?
Inflation Inflation is not limited to one country, but in most countries the annual inflation rate is around 1% to 2%. In Myanmar, a developing country, it is around 10% annually. In some countries, the inflation rate is 0% or -1% -2%. In such countries, there are different monetary policies, such as the policy that the depositor has to repay the interest-free deposit when depositing money in the bank. But the opposite is true: the people and the government own property every year. Due to the -1% -2% contraction situation, the inflation rate is usually maintained at a stable rate without any negative effects.
How do you usually measure inflation rate?
Since inflation is directly linked to the purchasing power of a currency, it calculates how much money can be bought at the beginning of the year and how much it can buy at the end of the year.
This calculation is not a one-size-fits-all calculation, but a standardized calculation of several types of goods. Food Consumer goods၊ Education Market Basket is considered by economists as a standard.
The above calculation method is the most commonly used Consumer Price Index (CPI) method. The inflation rate formula is due at the end of this year. This is a way of subtracting the initial CPI (Current CPI) from the CPI (Current CPI) and dividing it by the year CPI (Current CPI) and changing the percentage.
For example, let’s say Current CPI = 105, Initial CPI = 100. Then Inflation = (105-100) / 100 = 5%. This is the easiest way to calculate the inflation rate, and the public can easily search the Inflation Rate of Myanmar on the internet for this, as it is published annually by the Central Bank and other local and foreign financial institutions.
Another method is the Producer Price Index (PPI). This is. Domestic Product Labor costs As before, the basket calculates the difference in costs such as fuel. This method is less commonly used, but is also often used to compare CPI.
Why Inflation?
In fact, there are many factors that contribute to inflation. Rising commodity prices; Economic growth; There is an increase in the amount of money circulating in the market. People are doing more business without saving. Low bank interest rates; Import-export gap; Fluctuations in local and foreign currencies; Domestic productivity; Loan policies; International situation Scarcity of raw materials; Government cash withdrawals; Inflation is often caused by factors such as unemployment.
How do you control inflation?
The main reason for inflation is that the central bank sets monetary policy and maintains interest rates. For example, when dollar purchases increase and the dollar becomes scarce in the market, the dollar appreciates, prices rise, and the kyat depreciates, leading to inflation.
In this case, the central bank resells the dollar and stabilizes the value of the dollar to stabilize the value of the dollar. Similarly, when the dollar depreciates, the central bank has to buy back the dollars so as not to hurt the economy.
In addition, another common method is to control bank interest rates. In most cases, bank interest rates in most countries are kept below 1 or 2% of inflation. If bank interest rates go up, people are turning to safer banks instead of business and investment.
At this point, the amount of money circulating in the market decreases and the inflation rate tends to decrease. But there are also side effects, such as a slight economic downturn and rising unemployment.
On the contrary, when interest rates were cut, people began to withdraw money and invest in businesses that would be more suitable for interest rates. This could lead to more cash flow in the market, which could lead to economic growth, job growth, and wage increases, as well as side effects, such as inflation.
In addition, the government has introduced tax policies, Import and export policy; Domestic economic policy; Inflation is also controlled by factors such as productivity growth.
- What is the direct impact of inflation?
- Is inflation Good or Bad?
- Who will benefit from inflation?
Please continue to learn more in the next article…🙂 More Get Quotes Here…
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