Inflation affects equity prices in several ways.

Most importantly, investors are willing to pay less for a certain level of earnings when inflation is high, and more for a certain level of earnings when inflation is low (and expected to remain so). Read more: http://www.investopedia.com/ask/answers/123.asp#ixzz1fDjO1pQG

An increase in indirect taxes can also lead to increased production costs. A classic example of cost-push or supply-shock inflation is the oil crisis that occurred in the 1970s, after the OPEC raised oil prices. The US saw double digit inflation levels during this period. Since oil is used in every industry, a sharp rise in the price of oil leads to an increase in the prices of all commodities.
alaysia’s inflation rate hit a 27-year high of 7.7% in June 2008, compared to 3.8% in May 2008. It almost doubled in a period of one month mostly due to the increase in petrol price.

On the other hand, tax rises is the lead to increased production costs. A simple example of costpush or supply-shock inflation is one of the oil crisis that occurred in the year of 1970, after the OPEC raised the oil prices (Gordon, 2003). The US notice that the double digit inflation levels during this period. The similar incident goes to Malaysia inflation rate hit about 27 year high of 7.7% in the month of June 2008, likened to 3.8% in May 2008. This were remained nearly double in a period of a month mostly due to the increase of the petrol price were reported by The Star (2008). As know, oil were using all over industry, and a sharp increase in the price of oil leads to an increase in the prices of all produces.

This were contain the applicable “price” to specify the return by the government to hold back the printing of the money. in place of some other financial assets which offer . the law of supply plus the demand consequently dictates that prices will be increase highly.The following high inflation cause is the government were printing large amount of money and it’s were called as loose or expansionary monetary policy. However the money were over printing going around and then supply in plenteous usage that likened to the other things like products that can buy and spend by using the value of money. In this situation.

Different schools of thought emphasize different factors as the root cause of inflation. there is a consensus on the view that economic inflation is caused either by an increase in the money supply or a decrease in the quantity of goods being supplied. However. . controlling the price and wages etc. there is a consensus on theview that economic inflation is caused either by an increase in the money supply or a decrease in the quantity of goods being supplied. However. and that the effects of either high inflation or deflation are extremely damaging to the economy. regulating fixed exchange rates of domestic currency. the supply of savings (which affects the supply of reserves and monetary aggregate) and the supply of investment (which affects full employment and GDP). and that the effects of either high inflation or deflation are extremely damaging to the economy. Controlling prices and wages. To overcome this inflation. monetary authorities or finance ministries of most nations have the authority to take economic measures to control rising inflation by regulating the following factors: Reducing the central bank interest rates and increasing bank interest rates. monetary authorities or finance ministers of have a nations authority to take economic measures to control rising inflation by the following factor such as reducing interest rate and increase the rate. Providing cost of living allowance to citizens in order to create demand in the market. The MRR sets the floor for the interest rate regime in the money market (the nominal anchor rate) and thereby affects the supply of credit. called the minimum rediscount rate (MRR). This were define as The Central Bank lends to financially sound Deposit Money Banks at a most favourable rate of interest.To control the inflation the central banks. • • • Regulating fixed exchange rates of the domestic currency.

According from the BBC news (2009) it’s were achieve as historical low of 0. In addition.The Bank of England left interest rates on hold for the third month in a row today. They are used for steering interest rates. regularity and procedures. reverse transactions are the main open market instrument of the Eurosystem and can be employed in all four categories of operations. the reason is to boost up their money supply. Eurosystem open market operations can be divided into four categories: main refinancing operations.5 % interest rate and its continuously not be increasing base on the scale. Structural operations may also be conducted by means of outright transactions i. the Eurosystem has two other instruments available for the conduct of fine-tuning operations: foreign exchange swaps and the collection of fixed-term deposits. The result of the interest rate were trusting that a series of small movements in interest rates is a more real in achieving their aims rather than sharp and unforeseen jumps in the cost of borrowing money. specific features of the different types of open market instruments used by the Eurosystem are presented in detail. fine-tuning operations and structural operations. which currently stands at £125bn. The Bank's monetary policy committee (MPC) said after its latest monthly meeting that the Bank rate would remain at a historic low of 0. By . In the following sections. The purpose of using this tools to steering interest rate and handling the liquidness situation in the market.e. managing the liquidity situation in the market and signaling the stance of monetary policy. purchases and sales. Open market operation remains as main tools in the European Central Bank. amid growing evidence that the worst of the recession may be over. Open market operations play an important role in the Eurosystem’s monetary policy. longer-term refinancing operations. whereas ECB debt certificates may be used for structural absorption operations. As for the instruments used.5% and it would not increase the scale of its quantitative easing (QE) programme to boost the money supply. The bank of England remaining their interest rate in the low of percentage for the month in a raw today. With regard to their aims.

The purpose of using this tools to steering interest rate and handling the liquidness situation in the market. regularity and procedures the Euro open market operation by the way of four operation categories which is main refinancing. Open market operations are initiated by the ECB. The most important instrument is the reverse transaction (applicable on the basis of repurchase agreements or collateralized loans). Five types of instruments are available to the Euro for the conduct of open market operations. which also decides on the instrument to be used and on the terms and conditions for its execution.looking their goals. fine-turning and structural operation. quick tenders or bilateral procedures. longer-term refinancing. They can be executed on the basis of standard tenders. Euro using this instruments used for reverse dealings to the open market operation that employee able to operate with this intru Open market operation remains as main tools in the European Central Bank. foreign exchange swaps and the collection of fixed-term deposits. The Euros may also use outright transactions. the issuance of ECB debt certificates. .

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