Course: E conomics

Topic: Inflation
Course instructor: Nkesi
Kevin
Cohort: M AKE-IT
Members: Joseph Randy
Njong Daniel
L omgnou Theresia
 Table of Contents

Definition of Inflation Positive Effects

1 06

Measures of Inflation
02 07 Who Inflation hurts

Causes of Inflation 03 08 Who benefits from Inflation?

General Effects 04 09 Practical Example

Measures of controlling
Negative Effects 05 10 Inflation and conclusion
 What is Inflation?
According to
Crowther, “Inflation is
a state in which the
According to John value of money is
Maynard Keynes, “The falling, i.e. prices are
rise in the price-level rising.”
after the point of full
employment is true
inflation”.
 What is Inflation?

Inflation is defined as the

increase in the cost of living
as the price of goods and
services of daily or common
use, such as food, transport,
clothing, consumer staples,
housing, etc., rise. This rise in
the general price level in an
economy results in the
decline of the currency’s
purchasing power over time
 Types of Inflation

 Cost-Push Inflation

 Demand Pull Inflation

 Built-in Inflation

 Hyper-Inflation
 Measures of Inflation

The Consumer The Wholesale The Producer Pr

01 Price Index (CPI) 02 Price Index (WPI) 03 Index

The Wholesale Price Index is another popular The producer price index is a family of
The CPI is a measure that examines the
measure of inflation, which measures and indexes that measures the average change
weighted average of prices of a basket of
tracks the changes in the price of goods in the in selling prices received by domestic
goods and services which are of primary
stages before the retail level. producers of intermediate goods and
consumer needs.
services over time.
 Calculation of Inflation
(Using the Consumer Price Index)

The price of 1kg of meat in 2022 is 2500frs (year 1) and in 2023, it increases to 3000frs (year
2). The price of bread in 2022 is 150frs (year 1) and in 2023, it goes up to 200frs
(year 2), the inflation rate can be calculated as follows;

IT E 20 2 2 2 INF AT ION
Inflation = Price year2 – Price year1 X 100 Meat 2500 3000 20%
Price year 1
Bread 150 200 33.33%

Inflation = 3000 – 2500 X 100 Inflation = 200 – 150 X 100

2500 = 20% 150 = 33.33%
 Causes of Inflation

 Monetarist View  The Keynesian

View
 Rising Wages

 Increased money supply 

 Government Policies

 Devaluation/ Fall in Exchange Rate and Regulations

 Cuts in Interest Rates

 Negative effects of Inflation

 Hoarding  Menu Cost

 Social unrest and  Tax

revolts

 Hyper-Inflation
 Positive Effects of Inflation

 Labour-Market  Tax
Adjustments

 Room to maneuver

 Mundell-Tobin Effect

 Cost of living allowance

 Docs Who does Inflation
Let’s take a look on how
hurt?
inflation affects certain
members in an economy

Creditors

Fixed Income recipient Savers

 Docs Who benefits from
What about some hidden
Inflation
benefits of Inflation to certain
persons?

Debtors

Flexible income recipients Investors

 An example of Inflation
The most famous example is the hyperinflation that struck the German Weimar Republic
in the early 1920s. The nations that had been victorious in World War I demanded
reparations from Germany, which could not be paid in German paper currency, as this
was of suspect value due to government borrowing. Germany attempted to print paper
notes, buy foreign currency with them, and use that to pay their debts. This policy led to
the rapid devaluation of the German mark, and hyperinflation accompanied the
development. German consumers responded to the cycle by trying to spend their money
as fast as possible, understanding that it would be worth less the longer they waited.
More and more money flooded the economy, and its value plummeted to the point where
people would paper their walls with practically worthless bills. Similar situations have
occurred in Peru in 1990 and Zimbabwe in 2007–2008
 Methods of controlling inflation

The Retail Price Index (RPI) Control money supply

Government taxes and Wage Management

subsidies Currency revaluation

Encourage productivity
A tight monetary policy

Encourage imports and

discourage exports
 Conclusion

Inflation is a phenomenon which can never be

completely eradicated in an economy. It is therefore
very important to keep inflation under control using
fiscal, monetary and supply policies to ensure a
sustainable economic growth and development
Food for thought
Thank
You!
Make-IT Cohort

info@makeit.com

www.makeit.cm

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