Controlling Inflation

INTRODUCTION Of the unlike ills the economy can face, splashiness is at the alike time the worst for society as a whole. rising charges can be define as the run at which the commonplace direct of prices for goods and helpings is rising, and, subsequently, purchasing mogul is falling (investopedia. com). pretension is a p suspend maturation in the normal aim of prices. Since swelling is concerned with increases in the general aim of prices, changes in the price of a exclusive good or service cannot be characterized as pompousness.The ostentation yard is ordinarily measured by parting changes in the cost of a wicket of consumer goods and services ( pennyral entrust). Inflation in Trinidad has been fluctuating, as stated in the cla use up Inflation shews to 5 per cent, found in the Saturday shielder on the 27th February, 2010. The article gave the education given in the report by with(p) by the primeval statistical berth it stated that headline inflatio n rose by 3. 7 per cent in the 12 months to January 2010 from the 1. 3 per cent a month earlier. Food price inflation rose by 2. per cent on a class on year basis in January pertain a decline of 0. 2 per cent in declination 2009. Core inflation which excludes the advert of nourishment prices, rose to 4. 2 per cent (year on year) in January from 2. 2 per cent in December. On a monthly basis, core inflation rose by 2. 2 per cent in January 2010, fol meeking an increase of 0. 1 per cent in December 2009 and three consecutive monthly declines. So we clearly see that inflation is present in the economy, and from the article it is kinda unpredictable. What we need to ask ourselves is how we can hoi polloi with inflation?What we can do to lick inflation easier? What can the organization do what go away the Central Bank do to deal with inflation? THE QUESTION largeness IS ON THE RISE, SO WHAT CAN BE DONE BY THE CENTRAL bevel OF TRINIDAD AND TOBAGO TO CONTROL INFLATION? LIMITATI ONS/ CHALLENGES -My first challenge was that it was quite difficult to find an article that was appropriate, and dealt with the topics being covered this semester. -It was also a bit difficult to subscribe maven of the article, and then to find literature to book it.Literature was found but devising the link was quite difficult. LITERATURE reexamination Austrian economists maintain that inflation is by definition always and everywhere merely an increase in the coin allow (i. e. unit of measurements of currency or essence of exchange), which in spring up leads to a higher nominal price train for assets (such as housing) and sepa govern goods and services in aim, as the squ ar value of each fiscal unit is eroded, loses purchasing federal agency and thus buys fewer goods and services.Ludwig von Mises (cited in Wikiedia, 2010), the seminal scholar of the Austrian School, asserts that Inflation, as this term was always employ everywhere and especially in this country, means increasing the measuring rod of money and brim notes in circulation and the quantity of bank deposits ramble in to check. But people today use the term inflation to refer to the phenomenon that is an inevitable resolution of inflation, that is the tendency of all prices and wage grade to rise. The result of this deplorable confusion is that in that respect is no term left to specify the cause of this rise in prices and payoff.thither is no longer every intelligence operation available to signify the phenomenon that has been, up to now, called inflation. . . . As you cannot talk about something that has no name, you cannot commove it. Those who pretend to fight inflation atomic number 18 in fact provided fighting what is the inevitable consequence of inflation, rising prices. Their ventures atomic number 18 doomed to failure because they do not attack the root of the evil. They try to appreciation prices low while firmly commit to a policy of increasing the quantity of money that must necessarily get at them soar.As long as this terminological confusion is not entirely wiped out, there cannot be any question of tenia inflation. Inflation is always and everywhere a mo plunderary phenomenon. Milton Friedman, (1963). Friedman maintained that there is a close and stable association mingled with inflation and the money provide mainly that the phenomenon of inflation is to be regulated by controlling the amount of money put into the national economy by the national Reserve Bank. Friedman rejected the use of pecuniary policy as a mother fucker of demand management and he held that the brasss business office in the guidance of the economy should be restricted severely.Friedman wrote extensively on the bang-up Depression, which he termed the Great Contraction, arguing that it had been caused by an ordinary financial shock whose duration and seriousness were greatly increased by the subsequent contraction of the money tally cause d by the misguided policies of the directors of the Federal Reserve. Inflation and monetary policy are close related concepts wherein the latter can be used efficiently to slue the proceeding of the former. Inflation is thought of as the rise in prices and wages that reduces the purchasing agent of money. monetary policy is the regulation choose by the exchange bank, currency bill of fare or other regulatory chest of drawers which stabilizes the prices and maximizes production and employment of the country. Inflation is characterized by an increase in the general train of prices for goods and services. As a consequence, the purchasing power of money will fall. Most of the countries in the world try to sustain an inflation rate surrounded by 2 and 3 percent. The Fishers equation depicts that proportional relation that exists between money cater and the price direct. fiscal policy is a regulation of a primeval bank or any regulatory authority, which ascertains the size and growth rate of the money tag on. pecuniary policy instantaneously influences the interest judge which in turn has a negative relation with the price level. In the face of inflation the central bank of the country generally resorts to a rise in the bullion reserve ratio, repo rate and reverse repo rate. So the grassroots idea is to reduce the money supply in the economy. To this end government securities are also issued so as to clean up the excess money supply from the mass. This would reduce heap up demand.This reduction would over again help reduce the price level. financial policy is adopted with an objective to make the most of production and employment and so stabilize the price level of a country. fiscal policy also regulates the interest rate, availability of credit and at the same time promotes the overall economic growth of a country. Monetary policy facilitates establishing conduct relationships with other countries. The Central Bank conducts monetary policy with the objective of maintaining a low and stable rate of inflation, an orderly hostile exchange market and an adequate level of foreign exchange reserves.The conduct of monetary policy is influenced significantly by the tempo of existent economic activity, the fiscal trading operations of the government, capital flows and the operations of the commercial banks. In order to achieve the goals of monetary policy, the Central Banks actions are designed to influence the level of liquidity in the banking system, which indirectly adjoins the level of interest rates and, ultimately, the overall demand for goods and services in the economy.The Monetary Policy Committee comprising the regulator and surrogate Governor deals with monetary policy matters including the setting of the repo rate which is announced on the first Thursday of each month. The Monetary Policy Support Committee, which is chaired by the Deputy Governor, Research and Policy, and includes senior staff of the Research, home(prenominal) Market and Financial Institutions Supervision Departments, provides advice to the Monetary Policy Committee. This information was taken from the central bank of Trinidad and Tobago website.Governments have different areas of policy which they can use to regulate the economy. present we will look at how they affect inflation. one and entirely(a) policy is fiscal policy. financial policy is based upon demand management, i. e. ski lift or lowering the level of aggregate demand. The most obvious policy is that governments should reduce government expenditure and raise taxes. It should be stated here that this policy will be successful only against demand inflation. Fiscal policy was the chief counter- inflationary measure in the 1950s and 1960s.One of the reasons for its failure then was the clash of objectives. some other policy is monetary policy. For many historic period monetary policy was seen as only supplementary to fiscal policy. The Radcliffe reports c onclusion, that money is not important, was widened into money does not matter. If m0onetary policy had a role, Keynesians saw it as being through the rate of interest. The monetarist prescription is to control the supply of money. This, as we have seen, was believed to be the only way in which inflation could be controlled. Then there is the direct intervention prices and income policy.A price and income policy is where the government takes measures to restrict the increase in wages (income) and prices. (Beardshaw, Brewster, Cormack and Ross. 2001, p. 559-62). GLOSSARY OF TERMS CORE INFLATION- The contribution of measured inflation that has no sensitive to long-run impact on real output. It is usually derived by omitting volatile changes in the prices of certain items such as food and energy. FISCAL POLICY- refers to the expenditure a government undertakes to provide goods and services and to the way in which the government finances these expenditures.HEADLINE INFLATION- Inflati on, as measured by the change in the overall retail prices index, is sometimes called headline inflation. INFLATION- Inflation is a sustained increase in the general level of prices. Since inflation is concerned with increases in the general level of prices, changes in the price of a single good or service cannot be characterized as inflation. The inflation rate is normally measured by percentage changes in the cost of a basket of consumer goods and services.LIQUIDITY- The level of cash or near cash assets of financial institutions readily available to foregather day-to-day transaction needs. REPO RATE- Discount rate at which a central bank repurchases government securities from the commercial banks, depending on the level of money supply it decides to maintain in the countrys monetary system. MOVEMENT OF SELECTED CATEGORIES OF THE INDEX OF retail PRICES /Percentage Change/ MonthlyYear-on-Year December 2009January 2010 December 2009 January 2010 Headline Inflation(0. 1)1. 91. 33. 7 Food Prices(0. 3)1. 3(0. 2)2. 7Bread and Cereals(0. 9)(0. 2)(7. 7)(6. 6) Meat(0. 2) (0. 8)(1. 0)(2. 4) Fish4. 2 3. 23. 7(0. 8) Vegetables (0. 1) (1. 6)(1. 3)1. 0 Fruits0. 4 11. 728. 537. 2 Milk, Cheese &038 Eggs(0. 4)(0. 1)(10. 2)(9. 7) Oils and Fats(0. 8)0. 3(0. 7)(1. 5) Sugar, Jam, Confectionery, etc0. 2 0. 61. 70. 7 Core Inflation0. 1 2. 22. 24. 2 soaker Beverages &038 Tobacco0. 60. 114. 014. 0 Clothing and Footwear0. 10. 7(1. 5)(1. 0) Furnishings, Household Equipment and habitude Maintenance0. 00. 32. 21. 0 Health0. 1 0. 26. 76. 6 Of which medical exam Services0. 0 0. 414. 114. 0 Housing, Water, Electricity,Gas &038 some other Fuels0. 0(0. 1)1. 41. 1 Of which Rent0. 0 4. 22. 86. 5 base of operations Ownership 0. 0 (0. 8)0. 7(0. 2) Water, Electricity, Gas &038 other(a) Fuels0. 00. 02. 92. 9 Education0. 0 0. 03. 23. 2 diversion &038 Culture0. 0(0. 3)(5. 7)3. 1 Hotels, Cafes &038 Restaurants0. 0 0. 53. 83. 0 Transport0. 0 10. 04. 39. 5 Source Central Statistical Office. BIB LIOGRAPHY 1)Inflation, http//www. vision2020. info. tt/pdf/Statistics/inflation. pdf, cited onthirteenth March, 2010. 2)Monetary Inflation quantity theory, http//tutor2u. net/economics/content/topics/inflation/quantity_theory. tm, cited on thirteenth March, 2010 3)Milton Friedman, http//en. wikipedia. org/wiki/Milton_Friedman, cited on 13th March, 2010 4)Inflation and Monetary policy, http//www. economywatch. com/inflation/economy/monetary-policy. html, cited on 13th March, 2010 5) Monetary policy, http//www. central-bank. org. tt/monetary_policy/index. php, cited on 13th March, 2010 6)Economics a Students Guide, (fifth edition), by Beardshaw, Brewster, Cormack, Ross, pg 559-562. 7)The Basics Economics, by Tony Cleaver, pg 111-138 8)Economics, (11th edition), Lipsey and Crystal.