Inflation - Global Turmoil

7/31/2019 Inflation - Global Turmoil

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Presented By :

1.Jay Ravasa


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Persistent Rise in prices. Rise in supply of money. Decreases the Value of

money.


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Decline price levels of goodsand services.

Increase in Value of Money Decline in effective demand

Increase in unemployment.


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Whole Sale Price Index

Consumer Price Index


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Majorly:

Cost Push

Demand Pull/ Wage Inflation

Administered Price Inflation/Pricing

Power

Sectorial Inflation


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Mild Inflation

Strato Inflation

Hyper Inflation


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Zero Inflation

Optimal Inflation


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Lessens price distortion.

Lowers the uncertainty of price drifts.

Enhances economic growth.

Adds liquid money to the economy.Eg: United States.


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Good AND Bad.

Good:

Allows govt. to lower real interest ratesbelow zero.

Prevents liquidity trap.

Bad: Slows down economic growth.

Adds cost to long-term interest rates.


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Why Optimal Inflation rate should be lowand positive?

Why should Inflation be kept low?

1. When unanticipated-arbitrarily benefitsdebtors and hurts creditors.

2. When anticipated it can leave behindburden of heavy taxation.

Eg. Tax distortion


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Inflation lowers the relative value of money holding.

Why inflation should be above zero?

1.Maintain employment.

2.It ensures against falling prices.

3. Very low level of inflation can make

nominal interest rates close to 0%


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Growth and low inflation:


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Low inflation promotes:

i) Stability encourages

ii) Confidence investmentiii) Security

Promotes long-term economic growth


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INFLATION-GDP


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The Sub-Prime Crisis.

(video)

Changing trends.

Affecting 9 parameters of theeconomy


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Main component of monetarypolicy transmission.

Credit growth statistics:

In mid-July 2010- 21.3%

In mid-July 2011- 19.9%


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RBI has tightened policies.

Expected decline in inflation.

Inflation rate hike cycle will slow

down. Signs of slow growth in economy.


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U.S. constitutes 11% of Indias

goods export.

Also a holds a huge share inservice export sector.

U.S. economy directlyproportional to Indian exports.


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36% rise in imports.

Negative trade balance roseto 32bn$ from 27bn$.

Fall in crude price boon forIndia.


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2008- Growth rate less than 6.8%

2009 Increased to 7.4%


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-Distorts Investors perception.

-2009-2010 (April-Feb): 24.6bn $

- 2010-2011(April-Feb): 18.3bn $


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- Reduced access to financial resources

- Falling corporate profits

- Business perceptions of low returns

- Heightened risk


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Outbound FDI up by 144% since 2009-2010.

Mar-2011 : 43.9 bn $ invested by India.

RBI say :

Overseas investment- catalyzes export growth


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-FII: Foreign Institutional Investors.

-Include pension fund, insurance fund, mutual

fund.

-FII inflow in India is increasing.


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Economic slowdown has affectedglobal investors.

The perception of low returns reborn.

Major part of investments over.

Slow moving graph for the rest of theyear.


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US$-Re rate has an appreciationbias.

Increased inflation caused High inCPI by:

10.88% -2009

13.19% -2010

U.S. FDI up by 43% in 2010.


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The demand and supply factors of rupee mayresult in 3 conditions:

1st scenario:Re- depreciation:

Rise in oil prices + INR USD

exit of FII money

55/60-1


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2nd scenario:

-Re- appreciation:

FII inflow persistentImports could

+

cheaper

Increase in FDI

3rd scenario:

- Status quo


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Affects Countries TradingPartners

Affects Share of Imports

Affects Share of Exports

Indias Share in Global

Trade Volumes


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This channel shows confidence declines in business andhouseholds seeing the global uncertainty.

The decline in confidence can disrupt the economic conditions.

Decline in confidence is also one of the reasons for decline inbusiness investments which led to decline in overall Indian GDP

growth.

Credit growth also declined because of declinein business investments.


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If You dont save Greece if u dont save that one crater thanif greece emerges as default than it will create problems to everycountry who has lended the money and soon everyone will emerge as

bankrupt and so we have to apple such type of measures to save globalthat will indirectly curb the inflation ..And future details will be explain in detailed by others ..


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Petrol and Diesel prices have been ever increasing in

Mumbai.

The new petrol price in Mumbai is 71.92 AS ON 16TH

September 2011


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Use of bicycles , electric cars Set the same price of fuel all over the country

Lower taxes on petroleum products

Remove customs duty on crude oil


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Inflation in food products has driven overall inflation. As per latest data Food Inflation stands at 9.5 per cent.


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Our agriculture is in crisis

The growing penetration of big corporates in the foodeconomy

Price hikes of diesel and fertiliser


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Item Retail Price

(end-January

2008)

Retail Price

(end-January

2009)

Retail Price

(end-January

2010)

Retail Price

(end-January

2011)

Rice 17 22 23 23

Wheat 13 13 16 15.5

Milk (Rs./litre) 20 21 22 25

Groundnut Oil 121 109 113 135

Mustard Oil

69

77

71

79

Vanaspati 67 54 57 77

Salt Pack

(Iodized)

10 11 12 13

Onion 9 21 23 33


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State intervention in both production and distribution

Fixed rates for essential commodities through PDS

Stop artificial scarcity of food items and black marketing

Deregulation of fuel and fertilizer prices Cost of agricultural inputs to be subsidized


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Inflation is a tax on poor andlong term lenders

India has boom and bust cycle Aggregate demand is

increasing while Aggregate

supply is constant


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Need to fill the gap

between ADD and ASS

Either increase supply or

decrease demand

Increase production

capacity

Or build new plants


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CRR-Cash Reserve Ratio

Repo Rate and Reverse Repo

Rate Open market operations


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Inflation can be checked by

controlling the supply ofmoney

The Measures are

Control over Money

Credit control


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Decrease in public expenditure

Delay in payment of old debts Increase in taxes

Over valuation of money


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Increase in the production

Proper commercial policy

Encouragement to savings Proper Investment policy

Marginal Requirements

Labour market reforms.


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Increase Agriculturalproduction.

Control of illegal activities.

Population Control.

To supply basic education to all

Heavy investments in social

infrastructure. Investment in Entrepreneurship.


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Documents

Inflation - Global Turmoil