The Effect of Inflation on the Economy of Bangladesh

Topics: Inflation, Economics, Consumer price index Pages: 5 (1438 words) Published: January 3, 2013
The effect of inflation on the economy of bangladesh
Course: BUS
Code- 201
Ashik Mahmud
Department of Scholl of Business
University of Liberal Arts Bangladesh
SUBMITTED BY Rahatul Islam
ID: 091011146
Sec: 01
Department of Business Administration
University of Liberal Arts Bangladesh

What Is Inflation?
Is the unexpected and untended change, in the level of price. In order word’s when huge amount of money run’s behind few amount of good’s and service is consider as inflation’s. During inflation the level of domestic currency depreciate while. The value of foreign currency affricate. For example, if the inflation rate is 2% annually, then theoretically a 100tk pack of gum will cost 120tk in a year. After inflation, your dollar can't buy the same goods it could before hand. 

What Causes Inflation?
There are three causes of inflation. The first cause is called demand-pull inflation. This occurs when demand for a good or service rises, but supply stays the same. Buyers become willing to pay more to satisfy their demand. Demand-pull inflation can be accompanied by irrational exuberance. The second cause is cost-push inflation. It starts when the supply of goods or services is restricted for some reason, while demand stays the same. When the supply of labor is not enough to meet demand, it can create wage inflation. In the past, inflation in prices generally led to wage inflation, so that companies could retain good workers. However, competition from technological alternatives (such as robotics) and lower-income countries means that wages haven't kept up with prices. Higher prices combined with stagnant wages means your standard of living has decreased. It's another reason for income inequality in the U.S. The third cause is overexpansion of the money supply. That's when a glut of capital in the market chases too few opportunities. It's often a result of expansive fiscal or monetary policy, creating too much liquidity in the form of dollars or credit. Bangladesh - inflation

The value for Inflation, consumer prices (annual %) in Bangladesh was 8.13 as of 2010. As the graph below shows, over the past 23 years this indicator reached a maximum value of 10.30 in 1995 and a minimum value of 2.01 in 2001. Definition: Inflation as measured by the consumer price index reflects the annual percentage change in the cost to the average consumer of acquiring a basket of goods and services that may be fixed or changed at specified intervals, such as yearly. The Laspeyres formula is generally used.

Inflation, GDP deflator (annual %)
The value for Inflation, GDP deflator (annual %) in Bangladesh was 6.47 as of 2010. As the graph below shows, over the past 49 years this indicator reached a maximum value of 80.57 in 1975 and a minimum value of -17.63 in 1976. Definition: Inflation as measured by the annual growth rate of the GDP implicit deflator shows the rate of price change in the economy as a whole. The GDP implicit deflator is the ratio of GDP in current local currency to GDP in constant local currency.

Previous Inflation : in previous inflation are 2000-2012 data in billowCurrent inflation  Rate of Inflation (as measured by CPI, base 1995-96)| October, 2012| September, 2012| October, 2011| Point to point| 7.22%| 7.39%| 11.42%|

Monthly Average(Twelve Month)| 9.33%| 9.69%| 10.18%|

High inflation to affect financial sector: 
A double-digit inflation may adversely affect the financial sector, especially the banking sector in Bangladesh, according to a study. It said inflation at 10 percent and above negatively impacts assets, liability and private sector credit flows from the banking sector, putting a detrimental effect on the development of the overall financial sector. "There has been a long-run negative...
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