A Term

Paper
On
Inflation in the Economy
of World and
Bangladesh

Course Title:
Macroeconomics
Course Code:
MKT 221
Date Of Submission:

17.11.2014

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Prepared For

Dr. Samir Kumar Sheel

Department of Marketing
University of Dhaka
Prepared By

Name: The Credit Crunchers

Section: B
19th Batch
Department of Marketing
University of Dhaka
Details of the Group Members
Serial
1
2
3
4
5
6
7
8
9
10
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13
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Name
Muntasir Rakin
Md. Shahin Hossain
Syed Ahmed Nafisul Abrar
Didar Us Shams
Md. Mahady Hasan
Nazifa Nuzhat
Md. Zulfiker Alam
Md. Abdullah Al Mamun
S.M. Fahim Uddin
Jebun Neesa Ali
Nazmul Hasan
Md. Fuad Al Azad
Md. Masud Rana
Md. Rajib Ismail
Md. Ashraful Islam
Halima Akter Ankhi
Jannata Jenia
Md. Saiful Islam
Course Title: Introduction to Computer
Course Code: MKT 113
Date Of Submission: 10.5.2013

Roll
002
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Letter of Transmission:
Dr. Samir Kumar Sheel
Associate professor
Department of Marketing, University of Dhaka.
Sir,
In compliance with the fulfillment of the requirement on the subject Inflation in the
Economy of World and Bangladesh , we would like to present the proposal entitled
Inflation in the Economy of World and Bangladesh according to your instructions.
The main purpose of the document is to know about impact of inflation on an economy and how
to control it.
We hope that this term paper will meet your approval and our mistakes will be under your
consideration.

Respectfully yours,
Didar Us Shams,
Roll: 08, as a representative of the group The Credit Crunchers
19th batch, Department of Marketing, University of Dhaka.

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Table of Contents

Serial No.

Content

Page No.

Executive Summary

Introduction

Definition of Inflation
on World Perspective
Causes of Inflation

Effects of Inflation

10

Measuring method of
Inflation

11

Methodology for
Calculating Regional
and Global Estimates
of Price Inflation

13

9
10

11

analyzing the
consequences of
inflation
Benefits of inflation
Inflation in the
Economy of
Bangladesh
Macro-economic
Trend

17

19
20

22
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12

Conclusion

24

13

References

25

Executive Summary
In the recent past, the world economic environment has been at standstill this is as
a result of unstable economic growth in the world today. This is as a result of the
poor flow of resources in the worlds, thus resulting to inequality amongst the
people in the universe resulting to negative aspects such as inflation of the world
currencies. Increased prices of commodities, decline in consumer spending and
scarce distribution of resources. These effects results to the change of the standards
of the people lives to worsen as they are facing financial crisis. And this trend of
economic crisis will stay for a long time as the world economy will be face
instability as a result the political and financial crisis that is currently being
experienced in the world today. Here, inflation from the worlds perspective view
will be discussed. First of all, we need to find out what is inflation. Inflation is
defined as a sustained increase in the general level of prices for goods and services.
It is measured as an annual percentage increase. As inflation rises, every pound you
own buys a smaller percentage of a good or service. The value of a pound does not
stay constant when there is inflation. The value of a pound is observed in terms of
purchasing power, which are the real, tangible goods that money can buy. When
inflation goes up, there is a decline in the purchasing power of money. Here, causes
of inflation, effects of inflation and wasy to measure inflation will be discussed.

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Introduction
In economics, inflation is a sustained increase in the general price
level of goods and services in an economy over a period of time.
When the general price level rises, each unit of currency buys
fewer goods and services. Consequently, inflation reflects a
reduction in the purchasing power per unit of money a loss of
real value in the medium of exchange and unit of account within
the economy. A chief measure of price inflation is the inflation
rate, the annualized percentage change in a general price index
(normally the consumer price index) over time.
Inflation affects an economy in various ways, both positive and negative. Negative
effects of inflation include an increase in the opportunity cost of holding money,
uncertainty over future inflation which may discourage investment and savings,
and if inflation were rapid enough, shortages of goods as consumers begin
hoarding out of concern that prices will increase in the future. Positive effects
include ensuring that central banks can adjust real interest rates (to mitigate
recessions), and encouraging investment in non-monetary capital projects.
Economists generally believe that high rates of inflation and hyperinflation are
caused by an excessive growth of the money supply. However, money supply
growth does not necessarily cause inflation. Some economists maintain that under
the conditions of a liquidity trap, large monetary injections are like "pushing on a
string. Views on which factors determine low to moderate rates of inflation are
more varied. Low or moderate inflation may be attributed to fluctuations in real
demand for goods and services, or changes in available supplies such as during
scarcities. However, the consensus view is that a long sustained period of inflation
is caused by money supply growing faster than the rate of economic growth.

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Definition of Inflation on World Perspective:

Definition of Inflation has been different in different dictionaries over the ages. Inflation occurs
due to an unexpected rise in the supply of money which causes devaluation or a decrease in the
supply of goods and services. Again, the inflation rate decreases with the increase in the
production of goods and with the decrease in the supply of money in the market. The purview of
inflation has narrowed in the present day since only the phenomenon of increase in the price
level is termed as inflation these days. Previously, the devaluation of money was also considered
to be a condition of inflation. In the present day this phenomenon is known as a monetary
inflation. The inflation in price is measured against the purchasing power of the consumers and is
done by the Bureau of Labor Statistics in United States of America. Factors Leading to Inflation
There are several factors which lead to inflationary circumstances in an economy. These factors
enable the demand to increase without maintaining any balance with the supply.
The factors are:
1. Increase in the supply of money
2. Price Controls
3. Expenditure of monetary reserves
Generally, Inflation is an increase in the price of a basket of goods and services that is
representative of the economy as a whole.
A similar definition of inflation can be found in Economics by Parking and Bade:
Inflation is an upward movement in the average level of prices. Its opposite is deflation, a
downward movement in the average level of prices. The boundary between inflation and
deflation is price stability. The Link between Inflation and Money because inflation is a rise in
the general level of prices, it is intrinsically linked to money, as captured by the often heard
refrain "Inflation is too many dollars chasing too few goods".
Inflation is a sustained increase in the general level of prices for goods and services. It is
measured as an annual percentage increase.

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Causes of Inflation
Inflation means there is a sustained increase in the price level. The main causes of inflation are
either excess aggregate demand (economic growth too fast) or cost push factors (supply side
factors)
1. Demand pull inflation:
If the economy is at or close to full employment then an increase in AD leads to an
increase in the price level. As firms reach full capacity, they respond by putting up
prices, leading to inflation. Also, near full employment, workers can get higher wages
which increases their spending power.

AD can increase due to an increase in any of its components C+I+G+X-M

We tend to get demand pull inflation, if economic growth is above the long run trend rate of
growth. The long run trend rate of economic growth is the average sustainable rate of growth and
is determined by the growth in productivity.

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2. Cost Push Inflation:

if there is an increase in the costs of firms, then firms will pass this on to consumers. There will
be a shift to the left in the AS.

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Cost push inflation can be caused by many factors

A. Rising wages: If trades unions can present a common front then they can bargain for
higher wages. Rising wages are a key cause of cost push inflation because wages are the
most significant cost for many firms. (higher wages may also contribute to rising
demand)
B. Import prices: One third of all goods are imported in the UK. If there is a devaluation
then import prices will become more expensive leading to an increase in inflation. A
devaluation / depreciation means the Pound is worth less, therefore we have to pay more
to buy the same imported goods.
C. Raw Material Prices: The best example is the price of oil, if the oil price increase by
20% then this will have a significant impact on most goods in the economy and this will
lead to cost push inflation. E.g. in early 2008, there was a spike in the price of oil to over
$150 causing a temporary rise in inflation.
D. Profit Push Inflation: When firms push up prices to get higher rates of inflation. This is
more likely to occur during strong economic growth.
E. Declining productivity: If firms become less productive and allow costs to rise, this
invariably leads to higher prices.
F. Higher taxes: If the government put up taxes, such as VAT and Excise duty, this will lead
to higher prices, and therefore CPI will increase. However, these tax rises are likely to be
one-off increases. There is even a measure of inflation (CPI-CT) which ignores the effect
of temporary tax rises/decreases.

Other factor:

Rising house prices

Rising house prices do not directly cause inflation, but they can cause a positive wealth effect
and encourage consumer led economic growth. This can indirectly cause demand pull inflation

Printing more money

If the Central Bank prints more money, you would expect to see a rise in inflation. This is
because the money supply plays an important role in determining prices. If there is more money
chasing the same amount of goods, then prices will rise.

Effects of Inflation
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 Inflation Reduces the Value of Money: Initially you may have been able to buy a
certain item at a certain price, a loaf of bread for a dollar for instance. But after the effects
of inflation you may have to pay more to purchase the same amount of the commodity.
Poor performance by Equity (stock) markets: During periods of high inflation if
companies cannot pass their increased costs on to consumers, businesses suffer financial
losses. This causes the value of the stocks to go down.
Inflationary growth tends to be unsustainable leading to a damaging period of
boom and bust economic cycles. For example, the UK saw high inflation in the late
1980s, but this economic boom was unsustainable and when the government tried to
reduce inflation, it led to the recession of 1990-92.
Inflation tends to discourage investment and long term economic growth. This is
because of the uncertainty and confusion that is more likely to occur during periods of
high inflation.
Inflation can make an economy uncompetitive. For example, a relatively higher
rate of inflation in Italy can make Italian exports uncompetitive, leading to lower AD, a
current account deficit and lower economic growth.
Reduce value of savings. Inflation leads to a fall in the value of money. This
makes savers worse off If inflation is higher than interest rates. High inflation can lead
to a redistribution of income in society.
Menu costs costs of changing prices lists which becomes more frequent during
high inflation. Not so significant with modern technology.

Measuring method of Inflation

1. Monetary measures:
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Classical economists are of the view that inflation can be checked by controlling the
supply of money. Some of the important monetary measures to check inflation are as
underA. Controlling over money: it is suggested that to check inflation government should put
strict restrictions on the issue of the money by the government.
B. Credit control: Central bank should pursue credit control policy. In order to control
the credit it should increase the bank rate, raise minimum cash reserve ratio etc. it can
also issue notice to other banks in order to control credit.
2. Fiscal measures:
Measures taken by the government to control inflation.
A. Decrease in public expenditure: On of the main reasons of inflation is excess public
expenditure like building of roads, bridges etc. Government should drastically scale
down its non-essential expenditure.
B. Delay in payment of old debts: Payment of old debts that fall due should be
postponed for some time so that people may not acquire extra purchasing power.
C. Increase in taxes: Government should levy some new direct taxes and raise rates of
old taxes.
D. Over valuation of money: To control the over valuation of money it is essential to
encourage imports and discourage exports.

In North America, there are two main price indexes that measure inflation:
Consumer Price Index (CPI) - A measure of price changes in consumer goods and services
such as gasoline, food, clothing and automobiles. The CPI measures price change from the
perspective of the purchaser. U.S. CPI data can be found at the Bureau of Labor Statistics.
Producer Price Indexes (PPI) - A family of indexes that measure the average change over time
in selling prices by domestic producers of goods and services. PPIs measure price change from
the perspective of the seller. U.S. PPI data can be found at the Bureau of Labor Statistics.
Each month, the U.S. Bureau of Labor Statistics contacts thousands of retail stores, service
establishments, rental units and doctors' offices to obtain price information on thousands of items
used to track and measure price changes in the CPI. They record the prices of about 80,000 items
each month, which represent a scientifically selected sample of the prices paid by consumers for
the goods and services purchased. In the long run, the various PPIs and the CPI show a similar
rate of inflation. This is not the case in the short run, as PPIs often increase before the CPI. In
general, investors follow the CPI more than the PPIs.
Inflation Measurement in India
In India, there are five major national indices for measuring price levels. The Wholesale Price
Index (base 1993-94) is usually considered as the headline inflation indicator in India. Apart
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from WPI, four different consumer price indices covering different sections of the labor force
viz., industrial workers (IW) (base 2001), urban non-manual employees (UNME) (base 198485), agricultural laborer (AL) (base 1986-87) and rural laborer (RL) (base 1986-87) are also
available. Also, the GDP deflator as an indicator of inflation is available for the economy as a
whole and its different sectors, on a quarterly basis.
Wholesale Price Index (WPI): The Wholesale Price Index is the most widely used inflation
indicator in India. This is published by the Office of Economic Adviser, Ministry of Commerce
and Industry. The current series of Wholesale Price Index has 1993-94 as the base year and 435
commodities (98 primary articles, 19 articles under the fuel group and 318 articles under the
manufacturing products). Presently, two indices (monthly and weekly) are released regularly. On
a weekly basis, the price indices for primary articles and fuel group are published. On a monthly
basis, overall index including the manufacturing products are released1. The index is available
with a time lag of 2 weeks and the provisional figures get revised after 8 weeks.
Consumer Price Indices (CPIs): At present, there are four major consumer price indices
available in India. These relate to four different segments of workers viz., Industrial workers
(IW), agricultural laborers (AL), rural laborers (RL) and urban non- manual employees (UNME).
The salient features of the major consumer price indices are given in Table 1.

Table 1

GDP Deflator Based Inflation: GDP deflator, which is measured as the ratio of GDP at current
prices to GDP at constant prices also provides information on the trends in the general price
level. At present, the GDP deflator is available for the economy as a whole and the major subsectors. GDP deflator is considered as one of the most representative indicators of economy-wide
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inflation as it includes all transactions within the economy. The information on GDP deflator,
however, is available with a time lag of more than two months, making it less useful for
monetary policy purposes.

Methodology for Calculating Regional and Global

Estimates of Price Inflation
To satisfy an increasing need for global and regional estimates of price inflation, the International
Labor Organization developed the following method for calculating them.
Basically the method calculates regional price changes as a weighted geometric average of the
price changes that have been reported in each of the countries of the region, weighting each
country's price changes by its share of GDP in the region. Inflation is then calculated as the
percentage change in the average over some period, using one of two possible base periods.
Either the same month of the previous year is used as the base period or the previous month is.
There are many issues to deal with other than determining the basic method, such as what to do
about gaps in data, and the approaches taken to these issues are described here as well.
Step1. Gathering price data
Constructing the estimates begins with obtaining the consumer price index (general indices) of
every country that prepares them. These data are gathered by the ILO and are available for
download on the ILO website: http://laborsta.ilo.org/.
Step2. Refine the dataset
After all the price series are gathered, there are some irregularities in the data that need to be
dealt with. While most countries report monthly price data, a few report only quarterly, and two
report semiannually. Also, over the years some countries have changed the reference year on
which their index is calculated but have not provided enough information to allow the entire
series to be linked and rebased on one reference year. This leads to a "break" in the series when
the inflation numbers are calculated (described in more detail below). Finally, most countries
report only one consumer price index series, but some countries report more than one. For
example, one country might report two or three general CPI series, each of which covers
different geographical area or population group.

Step2A. Adjust for different reporting frequencies

Some countries report CPI data only quarterly or semiannually (28 and 2, respectively, of the 200
total. Click here for a list). Instead of leaving these countries out of the monthly regional
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estimates, we include them by estimating (interpolating) values for the missing months. There
are two estimation procedures for those countries reporting only quarterly or semiannually, one
of which is used when the base period is the same month of the previous year, and one of which
is used when the base period is the previous month.
i. When the base period is the same month of the previous year
In this case the procedure is to apply the quarterly estimate to each of the three months in a
quarter, and likewise with semiannual data, to apply the semiannual estimate to each of the six
months in the half-year. This procedure assumes that the price changes for the all months of the
reporting period have the same price level as the one that was reported; because the number
reported is the average for the period (the quarter or the half-year), this is reasonable.
ii. When the base period is the previous month
The method used for estimating missing months in the quarterly or semiannual series seems a
little more complicated but is pretty straightforward.
To get the monthly index values:
1. Take the CPI value from the current reporting period (quarter or half-year) and divide it by the
CPI value from the previous reporting period.
2. Take the third root of this ratio for quarterly data, or the sixth root for semiannual data.
3. Multiply the index value from the previous reporting period by the resulting value from (a) to
get the index value for the first month of the current period (note, it is really based on the final
month of the previous period, not the previous month).
4. Multiply the previous period index value by the resulting value from (a) squared to get an
index value for the second month of the current period.
5. Multiply the previous period index value by the resulting value from (a) cubed to get an index
value for the third month of the current period.
Continue the process for semiannual data, multiplying the previous period index value by (a), but
increasing the exponent by 1 for each successive month of the current period.

Step 2.B. Adjust for "breaks" in the data

For those countries whose price series are not based on one single reference period, the
calculation of month-to-month or month-over-the-same-month-of-the-previous-year inflation is
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problematic, In particular, it is not possible to calculate inflation values for any month that
requires price data from both sets of numbers, that is, where one number is based on one
reference year and the other number is based on another.
Because there are no reliable methods to estimate the missing data, the dataset must be adjusted
so that the problem months are not included in the estimates. (Note that their inclusion will result
in distorted estimates of period-to-period changes) Continuing with the example of country X, a
value of "missing" has to be assigned to each of the months of 1995, when using the same month
of the previous year as the base, so that no inflation values will be computed for that country in
1996. When using the previous month as the base, the value of "missing" is assigned to the final
month of 1995 so that no inflation is calculated for that country in January 1996. These series
thus will have breaks in them. Also, when GDP weights are calculated, the weights must be
adjusted in the months where data are missing (see below). (Click here to view the list of
countries that have breaks in their series.)
C. Adjust for countries reporting multiple price series
Some countries report multiple series. In these cases, all of the series are averaged together or
one or a subset of series is selected and used. Preference is given to series having wider
geographical coverage and relating to all income groups, provided they are no less current than
more narrowly defined series. (Click here to view the list of countries reporting multiple series.)
Step3. Preparing the weights
In calculating the total GDP and deriving the weights, only those countries that have price data
available for both the starting month and the ending month of the calculation are included. That
is, when using the same month of the previous year as the base to calculate inflation, only those
countries that have price data available for the month in consideration and for the same month of
the previous year are included in calculation of total GDP. This requirement means that countries
that have missing price data are excluded from total GDP for that particular month. Separate sets
of weights are calculated for each month.
GDP was chosen as the weighting variable over other some plausible alternatives, for example,
population, because GDP seemed the most appropriate--a regional inflation estimate weighted by
GDP indicates the general effect of inflation on the economy in the region. This weighting
procedure is also similar to the one used to calculate national CPIs, which are expenditureweighted indexes.

Step4. Weighting the price data

The CPI data for each country that is included in a particular regional estimate is powered by its
share of GDP in the region, expressed as percentage. These values, multiplied together, give the
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regional total. This is done for each month of data for each country that is part of a given
regional estimate.
The calculation of regional totals and averages for the world takes account of the problem that
data for some countries do not run through the end of the period for which world and regional
data should be calculable. Regional totals are estimated by assuming that the rate of change in
the unreported country data is the same as the rate of change in the weighted total or average of
the reported country data for that region.
Step5. Averaging
Regional price indexes are calculated as weighted geometric averages of the countries in the
region. A geometric average is used because it is less affected than an arithmetic average by
extreme values and is regarded as more suitable for groups where the dispersion of indices is
considerable. (A geometric average is calculated as the nth root of the product of n observations
or values. An arithmetic average is the result of the sum of n observations or values divided by
n.)
Step6. Calculating inflation estimates
Inflation is calculated from the series of index numbers as a percent change over some period.
The 12-month rate of change is calculated as the percentage variation over 12 months for
monthly series, over 4 quarters for quarterly series, and over 1 year for annual series.
Regional groupings
Researchers and analysts might be interested in any number of potential groupings, but initially
countries were assigned into one of six categories. The first two categories are developed and
transition economies, and countries not assigned to either of these are then grouped by
geographical location. Standard UNSD Country and Region Classification was used as a starting
point for making decisions on the major groupings. Modifications were made to account for the
specificity of the CPI. For example, the transition countries from Central and Eastern Europe
were grouped in a separate group from other transition countries because of the similar trends in
the price inflation they experienced at the beginning of 1990s.

CPI estimates are produced for the following main country groupings:
1. Developed countries
2. Transition countries
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3.
4.
5.
6.

Asia and Pacific

Latin America and the Caribbean
Sub-Saharan Africa
Middle East and North Africa

Analyzing the Consequences of Inflation

High and volatile inflation has economic and social costs.
Anticipated inflation:

When people are able to make accurate predictions of inflation, they can take steps to
protect themselves from its effects.
Trade unions might use their bargaining power to negotiate for increases in money wages
to protect the real wages of union members.

Households may switch savings into accounts offering a higher rate of interest or into
other financial assets where capital gains might outstrip price inflation.

Businesses can adjust prices and lenders can adjust interest rates. Businesses may also
seek to hedge against future price movements by transacting in forward markets. For
example, many airlines buy their fuel months in advance as a protection or hedge
against fluctuations in world oil prices.

Unanticipated inflation:

When inflation is volatile, it becomes difficult for individuals and businesses to correctly
predict the rate of inflation in the near future.
Unanticipated inflation occurs when people, businesses and governments make errors in
their inflation forecasts. Actual inflation may end up below or above expectations causing
losses in real incomes and a redistribution of income and wealth from one group to
another

Money Illusion
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People often confuse nominal and real values because they are misled by the effects of
inflation.
For example, a worker might experience a 6 per cent rise in his money wages giving the
impression that he or she is better off in real terms. However if inflation is also rising at 6
per cent, in real terms there has been no growth in income.
Money illusion is most likely to occur when inflation is unanticipated, so that peoples
expectations of inflation turn out to be some distance from the correct level.

The Economic Costs of Inflation

We must be careful to distinguish between different degrees of inflation, since low and stable
inflation is less damaging than hyperinflation where prices are out of control.
1. Impact of Inflation on Savers: When inflation is high, people may lose confidence in
money as the real value of savings is severely reduced. Savers will lose out if interest
rates are lower than inflation leading to negative real interest rates. This has certainly
happened in the UK during 2009-2011.
2. Inflation Expectations and Wage Demands: Price increases lead to higher wage
demands as people try to maintain their real living standards. This process is known as a
wage-price spiral.
3. Arbitrary Re-Distributions of Income: Inflation tends to hurt people in jobs with poor
bargaining positions in the labor market - for example people in low paid jobs with little
or no trade union protection may see the real value of their pay fall. Inflation can also
favor borrowers at the expense of savers as inflation erodes the real value of existing
debts.
4. Business Planning and Investment: Inflation can disrupt business planning. Budgeting
becomes difficult because of the uncertainty created by rising inflation of both prices and
costs - and this may reduce planned investment spending.
5. Competitiveness and Unemployment: Inflation is a possible cause of higher
unemployment in the medium term if one country experiences a much higher rate of
inflation than another, leading to a loss of international competitiveness and a
subsequent worsening of their trade performance.

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Benefits of inflation
Can inflation have positive consequences? The answer is yes although much depends on what
else is happening in the economy. Some of the potential advantages of benign inflation are as
follows:
1. Higher revenues and profits: A low stable rate of inflation of say between 1% and 3%
allows businesses to raise their prices, revenues and profits, whilst at the same time
workers can expect to see an increase in their pay packers. This can give psychological
boost and might lead to rising investment and productivity.
2. Tax revenues: The government gains from inflation through what is called fiscal drag
effects. For example many indirect taxes are ad valorem in nature, e.g. VAT at 20% - so
as prices rise, so does the amount of tax revenue flowing into the Treasury.
3. Cutting the real value of debt: Low stable inflation is also a way of helping to reduce
the real value of outstanding debts there are many home owners with huge mortgages
who might benefit from a period of inflation to bring down the real burden of their
mortgage loans. The government too might welcome a period of higher inflation given
the huge level of public sector debt!

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4. Avoiding deflation: Perhaps one of the key benefits of positive inflation is that an
economy can manage to avoid some of the dangers of a deflationary recession.

Inflation in the Economy of Bangladesh

The inflation rate in Bangladesh was recorded at 6.91 percent in August of 2014. Inflation Rate
in Bangladesh averaged 6.65 Percent from 1994 until 2014, reaching an all-time high of 12.71
Percent in December of 1998 and a record low of -0.02 Percent in December of 1996. Inflation
Rate in Bangladesh is reported by the Bangladesh Bureau of Statistics.

6.91

Previous

Highest

Lowest

Dates

Unit

Frequency

7.04

12.71

-0.02

1994 2014

Percent

Monthly

2005/06=100,
NSA

In Bangladesh, the inflation rate measures a broad rise or fall in prices that consumers pay for a
standard basket of goods. This page provides - Bangladesh Inflation Rate - actual values,
historical data, forecast, chart, statistics, economic calendar and news. Content for - Bangladesh
Inflation Rate - was last refreshed on Thursday, September 18, 2014.

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Inflation has risen in July, the first month of the new financial year in Bangladesh, over the
previous month. According to data released on Tuesday, point-to-point inflation was
7.04 percent in July against 6.97 percent in June. Planning Minister AHM Mustafa
Kamal released the latest inflation data at a press conference on Tuesday after a
meeting of the Executive Committee of the National Economic Council.

Finance Minister Abul Maal Abdul Muhith had said in his budget speech on June 5 that the
annual average inflation would hover around 7 percent in June this year and decrease at the end
of June next year.
But in June this year, the annual average rate was 7.35 percent.
The Bangladesh Bureau of Statistics (BBS) used to release information on inflation in the first
week of every month.
But the planning minister has been doing that over the past three months in presence of the
bureau officials.
According to data, non-food inflation increased to 5.71 percent in July from 5.45 percent in June.

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Macro-economic Trend
This is a chart of trend of gross domestic product of Bangladesh at market prices estimated by
the International Monetary Fund with figures in millions of Bangladeshi Taka. However, this
reflects only the formal sector of the economy.
Year

Gross Domestic Product

US Dollar Exchange

Inflation Index

Per Capita Income

(2000=100)

(as % of USA)

1980 250,300

16.10 Taka

20

1.79

1985 597,318

31.00 Taka

36

1.19

1990 1,054,234

35.79 Taka

58

1.16

1995 1,594,210

40.27 Taka

78

1.12

2000 2,453,160

52.14 Taka

100

0.97

2005 3,913,334

63.92 Taka

126

0.95

2008 5,003,438

68.65 Taka

147

2010

70.20 Taka

2014

76.20 Taka

Mean wages were $0.58 per man-hour in 2009.

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Current inflation:
Rate of Inflation
(as measured by CPI, base 2005-06)
July, 2014

June, 2014

July, 2013

Point to point

7.04%

6.97%

7.85%

Monthly Average(Twelve Month)

7.28%

7.35%

6.99%

Source : BBS (Bangladesh Bureau of Statistics)

The 2013-14 financial year has ended with a 7.35 percent inflation on average.
Planning Minister AHM Mustafa Kamal on Thursday disclosed the information which spoiled
Finance Minister AMA Muhith's hope to keep the inflation under 7 percent in the new fiscal.
While presenting the 2014-15 budget proposal in June, Muhith had not set any inflation target
but expected the rate to drop.
Kamal at a press briefing said the rate in last fiscal's June was at 6.97 percent on a point-to-point
basis. It was 7.48 percent in May.
He said 2013-14's annual average inflation was at 7.35 percent.
The inflation rate in 2012-13 was 6.78 percent.

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.Conclusion
Today, most economists favor a low and steady rate of inflation. Low (as
opposed to zero or negative) inflation reduces the severity of economic
recessions by enabling the labor market to adjust more quickly in a
downturn, and reduces the risk that a liquidity trap prevents monetary policy
from stabilizing the economy. The task of keeping the rate of inflation low
and stable is usually given to monetary authorities. Generally, these
monetary authorities are the central banks that control monetary policy
through the setting of interest rates, through open market operations, and
through the setting of banking reserve requirements

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References
Internet:
www.investopedia.com
economictimes.indiatimes.com
www.bls.gov/data/inflation
www.wikipedia.org
www.banglapedia.org

Journals:
1.The numbers reported here refer to the US Consumer Price
Index for All Urban Consumers, All Items, series CPIAUCNS, from
base level 100 in base year 1982. They were downloaded from
the FRED database] at the Federal Reserve Bank of St. Louis on
August 8, 2008.

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References
Books:
1. Abel, Andrew; Bernanke, Ben (2005). "Macroeconomics" (5th ed.). Pearson.
2.Barro, Robert J. (1997). Macroeconomics. Cambridge, Mass: MIT Press. p. 895.
ISBN 0-262-02436-5.
3.Blanchard, Olivier (2000). Macroeconomics (2nd ed.). Englewood Cliffs, N.J:
Prentice Hall. ISBN 0-13-013306-X.
4. Mankiw, N. Gregory (2002). "Macroeconomics" (5th ed.). Worth.
5. Hall, Robert E.; Taylor, John B. (1993). Macroeconomics. New York: W.W.
Norton. p. 637. ISBN 0-393-96307-1.
6. Burda, Michael C.; Wyplosz, Charles (1997). Macroeconomics: a European text.
Oxford [Oxfordshire]: Oxford University Press. ISBN
7.Auernheimer, Leonardo, "The Honest Government's Guide to the Revenue From
the Creation of Money," Journal of Political Economy, Vol. 82, No. 3, May/June
1974, pp. 598606.
8.Baumol, William J. and Alan S. Blinder, Macroeconomics: Principles and
Policy, Tenth edition. Thomson South-Western, 2006. ISBN 0-324-22114-2
9.Friedman, Milton, Nobel lecture: Inflation and unemployment 1977
10 Mishkin, Frederic S., The Economics of Money, Banking, and Financial
Markets, New York, Harper Collins, 1995.
11. Federal Reserve Bank of Boston, "Understanding Inflation and the Implications
for Monetary Policy: A Phillips Curve Retrospective

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