Department : Economics

Course code : ECO102.2

Course Title : Principles of Macroeconomics
Topic :
Submitted to : Ms. Shuktara Khanom
Submitted by :
Name Id
2023120106
Introduction:
Inflation in Bangladesh, a pressing economic concern, demands contemporary analysis. This study
explores the intricate dynamics shaping inflation within Bangladesh's economic landscape. Examining
factors such as government policies, global market influences, and local economic conditions provides a
comprehensive understanding of the nation's inflationary trends.there are many consequences of
inflations in country like For a very large number of households in Bangladesh rising inflation poses a
significant challenge. Rising inflation can erode value of real wages and savings, making households
poorer thus creating a cost of living crisis. The effects of the cost of living crisis are not felt equally.And
there are many types of inflation in our Economic.

Inflation Rate Of Bangladesh

Inflation Rate in Bangladesh decreased to 9.49 percent in November from 9.93 percent in October of
2023. Inflation Rate in Bangladesh is expected to be 9.20 percent by the end of this quarter, according to
Trading Economics global macro models and analysts expectations. [ Source: Google ]

The Consumer Price Index (CPI), a measure of the average change over time in the prices paid by
consumers for a basket of goods and services, grew 9.93 percent in October.

Last month, food inflation slipped to 10.76 percent from 12.56 percent in October while non-food
inflation declined to 8.16 percent from 8.30 percent. [ The Daily Star ]

Real interest rate

The real interest rate is the rate of interest an investor, saver or lender receives (or expects to receive)
after allowing for inflation. It can be described more formally by the Fisher equation, which states that
the real interest rate is approximately the nominal interest rate minus the inflation rate.

If, for example, an investor were able to lock in a 5% interest rate for the coming year and anticipated a
2% rise in prices, they would expect to earn a real interest rate of 3%.The expected real interest rate is
not a single number, as different investors have different expectations of future inflation. Since the
inflation rate over the course of a loan is not known initially, volatility in inflation represents a risk to
both the lender and the borrower. In the case of contracts stated in terms of the nominal interest rate,
the real interest rate is known only at the end of the period of the loan, based on the realized inflation
rate; this is called the ex-post real interest rate. Since the introduction of inflation- indexed bonds, ex-
ante real interest rates have become observable.

Compensation for lending

An individual who lends money for repayment at a later point in time expects to be compensated for the
time value of money, or not having the use of that money while it is lent. In addition, they will want to
be compensated for the expected value of the loss of purchasing power when the loan is repaid. These
expected losses include the possibility that the borrower will default or be unable to pay on the
originally agreed upon terms, or that collateral backing the loan will prove to be less valuable than
estimated; the possibility of changes in taxation and regulatory changes which would prevent the lender
from collecting on a loan or having to pay more in taxes on the amount repaid than originally estimated;
and the loss of buying power compared to the money originally lent, due to inflation.

Nominal interest rates measure the sum of the compensations for all three sources of loss, plus the
time value of the money itself.

Real interest rates measure the compensation for expected losses due to default and regulatory
changes as well as measuring the time value of money; they differ from nominal rates of interest by
excluding the inflation compensation component. On an economy-wide basis, the "real interest rate" in
an economy is often considered to be the rate of return on a risk-free investment, such as US Treasury
notes, minus an index of inflation, such as the rate of change of the CPI or GDP deflator. [ Source:
Wikipedia ]

Causes of inflation
INFLATION is the biggest financial problem and challenge not only in Bangladesh, but also in many other
countries. Inflation in the US, the largest economy, is now at 9.1 per cent, the highest in 40 years.
Theoretically inflation occurs for two reasons: an increase in demand and in cost of production. After the
shock of the Covid epidemic subsided, demand jumped as global economic activity began to normalise
from last January. But due to supply shortages and low production, global inflation has been on the rise
since then. Then on February 24, when Russia attacked Ukraine, there was a severe energy crisis and
production costs increased further. Again, the economic sanctions against Russia reduced the global
supply of food grains including wheat. As a result, inflation has touched in the world at the same time
due to demand (demand pull) and production cost increase (cost push), which have not been seen
before in history. [ Source: Source:NEW AGE]

Cost-push inflation: It is inflation caused by an increase in prices of inputs like labour, raw material, etc.
The increased price of the factors of production leads to a decreased supply of these goods. While the
demand remains constant, the prices of commodities increase causing a rise in the overall price level.

For example: Globally, oil prices are rising and the global supply chain has been disrupted due to the
Russia-Ukraine crisis leading to a cost push inflation in countries like Bangladesh.

Demand-pull inflation: It occurs when there is an increase in demand for goods and services. This type
of inflation is typically caused by overall economic growth, technological innovations or a rising inflation
rate. When this occurs, it can increase jobs and stimulate the economy but it drives prices of goods up.
[ Source: The Business standard ]

Inflation in economics generally refers to an increase in the money supply. Inflation occurs when the
supply of money in an economy increases and the supply of goods and services remain unchanged. This
increases both the demand and the price level. Inflation, both classically and lexically, means a
continuous increase in the prices of all kinds of goods and services, usually caused by an excess money
supply, which results in a decrease in the value of money. But if there is an increase in the price of only
one, two or few goods or services, then it is not called inflation. Inflation is said to occur when the prices
of goods and services increase overall. For example, it can be said that in the wake of the Russia-Ukraine
war in 2022, the price of crude oil in the global market has increased almost all the commodities around
the world. This has generated inflation.
Inflation can also be defined in another way. If the purchasing power of a currency decreases, then the
situation is also called inflation. For example, in 2012, the price of 1 kilogram of rice was tk 25, while in
2022, the price was tk 50. In other words, the amount of rice that was available for tk 25 in 2012, today
in 2022, less amount of rice is available for the same amount of money. This means that the currency’s
power or its value has depreciated, resulting in inflationary conditions.

Inflation usually occurs for two reasons. First, demand-driven inflation — in this case, if the demand for
goods and services increases in a country without having corresponding supply of goods or services,
then the prices of those goods and services that are sufficient increase and create inflationary
conditions. We know that if a commodity is in short supply but in high demand, the price of that
commodity will rise. Such inflationary conditions can be created if the government lowers income taxes
or lowers interest rates, or raises employee wages. Secondly, inflation occurs due to price increase. In
this case, if the price of raw materials or those goods or services on which the economy of a country is
heavily dependent increases, then inflation occurs. For example, if the price of petrol or diesel increases,
prices of products that ultimately reaches the consumer through vehicles run on petrol or diesel
increase too. Other causes of inflation are increase in money supply, decrease in production, increase in
cost of production, inadequate power supply, natural calamities, wars and epidemics, increase in travel
and transportation costs, hoarding and smuggling, population growth, liberal credit policy, political
instability, etc.

Inflation accelerates income inequality in society, creates social discontent and creates an unstable
economy. So, to control inflation, the government mainly takes two types of measures — monetary
policy and fiscal policy. As monetary policy, the central bank tries to reduce the amount of money
created by selling government bonds in the open market, by increasing the rate at which the central
bank lends money to the commercial banks to control the money supply and may increase the cash
deposit ratio or reserve for commercial banks. Fiscal policy, on the other hand, is much more effective
than monetary policy in controlling inflation as per the current economic system. One of the causes of
inflation is overspending. During times of inflation, the government may reduce spending on
unproductive sectors. Again, the government can reduce the disposable income of the people by
increasing the level of taxes imposed on the people or imposing new taxes to control the inflation
caused by the increase in demand. Governments can subsidie production if the economy experiences
inflation due to increased consumption or inflation due to reduced production. On the other hand, in
times of domestic debt-inflation, the government can borrow from individuals, institutions and banks
within the country.

Controlling hyperinflation has now emerged as a major challenge for the economy. Inflation has
increased consistently for the past five months. It was below 6 per cent last January. It crossed 6 per
cent in February, and since then the rate of inflation has been increasing continuously. However,
economists believe that the actual inflation rate is higher than 7.56 per cent. The pressure of this
inflation is more than 10 per cent, especially on the poor people.

However, whatever the government says, the low-income people face the most hardship due to an
increase in commodity prices. Therefore, to protect their interests, the supply of daily necessities must
be ensured. The government should have full control over the market. In order to keep the wheels of
the economy moving, it is necessary to control the rise in commodity prices. All visible and invisible
syndicates must be broken and the right and security of the common and low-income people must be
ensured. [ Source:NEW AGE,written by:Zillur Rahaman,published :August 02,2022 ]

Impact on consumer prices

1. *Reduced Purchasing Power:* Inflation erodes the purchasing power of money, meaning
consumers can buy fewer goods and services with the same amount of currency.

2. *Income Redistribution:* Inflation can lead to a redistribution of income, favoring those with assets or
investments that appreciate during inflation, while negatively impacting those on fixed incomes or with
savings.

3. *Uncertainty:* High inflation rates can create economic uncertainty, making it challenging for
consumers to plan for the future due to unpredictable changes in prices.

4. *Interest Rates:* Central banks may raise interest rates to control inflation, affecting borrowing costs
for consumers. Higher interest rates can deter spending and impact mortgage and loan payments.

5. *Menu Costs:* Businesses may incur costs to adjust prices more frequently in an inflationary
environment, known as menu costs, which can lead to inefficiencies in the economy.

6. *Savings and Investments:* Inflation reduces the real value of savings and fixed-return investments,
potentially discouraging saving and encouraging riskier investments.

7. *Wage-Price Spiral:* In some cases, workers may demand higher wages to keep up with rising prices,
contributing to a cycle of increasing wages and prices known as the wage-price spiral.

8. *International Competitiveness:* If inflation is higher in one country compared to others, it can affect
the international competitiveness of its goods and services, impacting trade balances.

9. *Cost-Push and Demand-Pull Inflation:* Different types of inflation, like cost-push (driven by
increased production costs) and demand-pull (due to excessive demand), can have varying impacts on
consumer prices.

10. *Social and Political Consequences:* High inflation rates can lead to social and political unrest as the
cost of living rises, affecting the overall well-being of the population and potentially influencing
government policies.

Understanding these impacts helps policymakers and individuals navigate the challenges associated with
inflation.
The impact of inflation on the economy
Lost purchasing power:
The most obvious impact of inflation is the loss of purchasing power. As purchasing power
erodes, many feel the impacts on their budget. But those on a low income or fixed income often
feel the effect the most. The most obvious impact of inflation is the loss of purchasing power. As
purchasing power erodes, many feel the impacts on their budget. But those on a low income or
fixed income often feel the effect the most.
Uncertainly and planning challenges:
High inflation introduces uncertainty into the economy, making, it difficult for business and
individuals to plan for the future. Price instability can disrupt long-term investment decisions and
hinder economic growth.
Distorted Resource Allocation:
Inflation can distort resource allocation by affecting relative prices. For example, if prices of
certain goods rise faster than others, it may lead to misallocation of resources, as businesses and
consumers may shift their focus to sectors with higher inflation, rather than areas with more
economic potential.
Higher interest rates:
The Federal Reserve has a relatively limited toolkit to tame inflation. The option they commonly
turn to first is usually raising interest rates. As the Fed pushes interest rates higher, it gets more
expensive to borrow money. The average consumer takes advantage of borrowing to make major
purchases, like a home or vehicle, a reality. This means rising interest rates impact household
purchases across the country. If you have any debt with a variable interest rate, you’ll face higher
costs as your interest rates increase.
Higher prices for everything:
When everything is more expensive, the impacts are felt by everyone. After all, it’s impossible to
go without the basics such as food or electricity. But with rising costs, it can become more
difficult to make ends meet. The older and lower-income wage earners are the first to feel the
bite of higher prices. But eventually, it works its way up the income chain and begins to threaten
companies or even entire industries.
Economy growth slows:
As inflation runs rampant, the Fed tightens its monetary policy. With the money supply drying
up, credit becomes more expensive and credit requirements tighten. The cost to borrow money is
intentionally increased with the hope that this will decrease consumer spending and slow
inflation.
However, consumers looking to make major purchases will find this challenging. Since most
need credit to make a major purchase, the end result is that it slows down the economy.
Interest rate challenges:
Centrals banks often respond to inflation by raising interest rates. Higher interest rates can lead
to increased borrowing costs for businesses and individuals, potentially slowing down
investment and spending. This can have a negative impact on economic growth.
Anti-Inflationary Measures Can Cause A Recession:
Inflation is a major threat to the economy. But as the Fed tries to adjust the market with
monetary policy and interest rate hikes, sometimes it overcorrects. If the market isn’t ready for
the Fed’s actions, that can mean lower economic growth for the country. When this happens for
one quarter, it is usually referred to as a contraction. But if this happens for two quarters in a
row, it is generally considered the start of a recession.
Income Redistribution:
Inflation can result in redistribution of income and wealth. Those with fixed incomes, such as
retirees on pensions, may see a decline in their real purchasing power. Conversely, those with
variable incomes or assets that appreciate with inflation, like real estate, may benefit.
In conclusion, during a recessionary environment, the Fed often lowers interest rates to
encourage economic activity. But as the cycle continues, it can be a painful ride for everyone.
These effects highlight the complex and multifaceted impact of inflation on the economy.

Government policies of inflation

Inflation occurs when spending on goods and services outstrips production. Prices can rise
because of supply constraints that increase the cost of producing goods and offering services, or
because consumers, enjoying the benefits of a booming economy, spend their excess cash faster
than producers can increase production. Inflation is often the result of some combination of these
two scenarios. Governments generally try to keep inflation within an optimal range that promotes
growth without dramatically reducing the purchasing power of the currency. Much of the
responsibility for controlling inflation in the U.S. falls on the Federal Open Market, a Federal
Reserve committee that sets monetary policy to achieve the Fed's goals of stable prices and
maximum employment. Board of Governors of the Federal Reserve System.
Price controls:
Rent control is one of the most common forms of price control. Government programs establish
limits on the maximum amount of rent a property owner can collect from their tenants. These
limits are also imposed on annual rent increases. The rationale behind rent control is that it helps
keep housing affordable, especially for more vulnerable people like those with
lower incomes and aging adults. Governments commonly impose controls on drug pieces. This is
especially true for life-saving and specialty medications like insulin. Drug companies often come
under pressure for setting prices too high. Their rationale is normally patent protection and to
cover the expensive costs of research and development (R&D) and distribution. Consumers and
governments say this puts certain medications out of reach for the average citizen. Minimum
wages are considered a form of price control as well. In this case, it is a price floor or the lowest
possible salary an employer can pay to their employees. Minimum wages ensure that individuals
can maintain a specific standard of living.
Contractionary Monetary Policy
Contractionary monetary policy is now a more popular method of controlling inflation. The goal
of a contractionary policy is to reduce the money supply within an economy by increasing
interest rates. This helps slow economic growth by making credit more expensive, which reduces
consumer and business spending. Higher interest rates on government securities also slow
growth by incentivizing banks and investors to buy Treasuries, which guarantee a set rate of
return, instead of the riskier equity investments that benefit from low rates. Treasury Direct.
Open Market Operations
Reverse repurchase agreements are an example of open market operations (OMOs), which refers
to the buying and selling of Treasury securities. OMOs are a tool with which the Federal Reserve
increases (by buying Treasuries) or decreases (by selling Treasuries) the money supply and
adjusts interest rates. The infamous Federal Reserve balance sheet grows when the Fed buys
securities and shrinks when it sells them. Buying securities promotes liquidity in financial
markets and puts downward pressure on interest rates while selling securities does the opposite.
Reserve Requirements
Up until March 26, 2020, the Federal Reserve also managed the money supply through reserve
requirements, or the amount of money banks were legally required to keep on hand to cover
withdrawals. The more money banks were required to hold back, the less they had to lend to
consumers. Though reserve requirements were dropped to zero in March 2020, the Fed retains
the authority to restore reserve requirements in the future.
Discount Rate
The discount rate is the interest rate charged on loans made by the Federal Reserve to
commercial banks and other financial institutions. The lending facility through which these
short-term loans are made is called the discount window. The discount rate, which is the same
across all Reserve Banks, is set by consensus of each regional bank's board of directors and the
Fed's Board of Governors. Board of Governors of the Federal Reserve System. The Discount
Window And Discount Rate. "Though the discount window's primary purpose is to fulfill banks'
short-term liquidity needs and maintain stability in the banking system, the discount rate is yet
another interest rate that needs to be raised to temper inflation.
Though the discount window's primary purpose is to fulfill banks' short-term liquidity needs and
maintain stability in the banking system, the discount rate is yet another interest rate that needs to
be raised to temper inflation.

Inflation situation in Bangladesh

Inflation is the rate at which the consumer prices of necessary things the people within a country
purchase change. Usually, a government should target an annualized inflation rate of 2% for the
country to see positive economic growth and stop consumer goods from becoming costly. That
means that the prices in a weighted average of the consumer basket increase by 2% because the
demand for those products is growing faster than the supply.
Currently, Bangladesh is seeing a sustained high inflation rate hovering around 9.69%, whereas
other similar nations are seeing a dip.
The inflation rate for consumer prices in Bangladesh is increasing over time. In the past 34 years
the inflation rate moved over between 2.0% and 11.4%. For 2022, an inflation rate of 7.7% was
calculated. During the observation period from 2012 to 2022, the average inflation rate was
6.05% per year. Overall, the price increase was 725.52%. An item that cost 100 takas in 1987
costs 889.06 taka at the beginning of 2023. Estimates of the impact on households due to
inflation in Bangladesh are given in this study by using secondary data that are collected from
different institutions. The findings imply that because the poor spend a greater percentage of
their income on food, the current inflation has a greater negative impact on them. The findings
show that recent inflation is mostly caused by increasing food costs, and that the inflation rate
experienced by the poor is larger than that of the non-poor groups. This paper emphasizes how
crucial it is for the government to implement pro-poor growth and anti-inflation policies in order
to lessen the negative consequences of recent inflation on the underprivileged

Food inflation
Food inflation refers to the specific increase in the prices of food items over time. Several factors
contribute to food inflation, impacting both consumers and the broader economy:

1. *Supply and Demand Dynamics:* Fluctuations in food production, influenced by factors such as
weather conditions, natural disasters, and agricultural practices, can affect supply. When demand
exceeds supply, prices tend to rise.

2. *Transportation Costs:* Rising fuel prices and transportation costs can contribute to increased food
prices, especially when food items need to be transported over long distances.

3. *Global Commodity Prices:* Changes in global prices for commodities like wheat, corn, and soybeans
can impact the cost of raw materials, affecting the prices of various food products.

4. *Exchange Rates:* Currency fluctuations influence the cost of imported foods. If a country heavily
relies on imports, a weakening domestic currency can lead to higher food prices.
5. *Government Policies:* Trade policies, subsidies, and regulations set by governments can impact food
prices. For example, removing subsidies may lead to higher prices for certain food items.

6. *Droughts and Natural Disasters:* Events such as droughts, floods, or other natural disasters can
disrupt agricultural production, leading to lower yields and increased food prices.

7. *Processing and Distribution Costs:* Costs incurred during food processing and distribution, including
labor, energy, and packaging, contribute to the overall price of food products.

8. *Speculation in Futures Markets:* Speculation in commodity futures markets can influence food
prices, as investors bet on future price movements, affecting supply and demand dynamics.

9. *Biofuel Production:* The use of crops for biofuel production can divert resources away from food
production, impacting supply and contributing to food price increases.

10. *Climate Change:* Long-term climate changes can affect agricultural productivity, leading to shifts in
growing seasons, changes in crop yields, and increased susceptibility to pests and diseases.

Food inflation can have significant consequences, particularly for vulnerable populations who spend a
significant portion of their income on food. It also poses challenges for policymakers in managing
inflation and ensuring food security.

Exchange rate dynamics

Exchange rate dynamics refer to the fluctuations and movements in the value of one currency relative to
another in the foreign exchange market. Several factors influence exchange rates, creating a complex
and dynamic environment:

1. *Supply and Demand:* Like any other market, currency exchange rates are influenced by supply and
demand. If more people want a particular currency, its value tends to rise, and vice versa.

2. *Interest Rates:* Central banks set interest rates, affecting the attractiveness of a currency to
investors. Higher interest rates in a country may attract foreign capital, leading to an appreciation of its
currency.

3. *Economic Indicators:* Economic data, such as GDP growth, unemployment rates, and manufacturing
output, can impact investor confidence and influence currency values.

4. *Inflation Rates:* Countries with lower inflation rates generally see an appreciation in their currency
value. Central banks often adjust interest rates to control inflation, impacting exchange rates.

5. *Political Stability:* Political stability and effective governance attract foreign investment, positively
influencing a currency's value. Political uncertainty or instability can have the opposite effect.

6. *Trade Balances:* A country's trade balance, the difference between exports and imports, can
influence its currency. A trade surplus may lead to currency appreciation, while a deficit may lead to
depreciation.
7. *Speculation:* Traders and investors often engage in speculative activities based on expectations of
future exchange rate movements, contributing to short-term fluctuations.

8. *Central Bank Interventions:* Central banks may directly intervene in currency markets by buying or
selling their own currency to influence its value. This is usually done to stabilize or adjust the exchange
rate

9. *Global Economic Conditions:* Economic conditions worldwide can impact exchange rates. For
example, during a global economic crisis, investors may seek refuge in safe-haven currencies, affecting
their values.

10. *Market Sentiment:* Investor sentiment and perception of risk can impact currency values. Events
such as geopolitical tensions or global economic uncertainties can influence market sentiment.

Understanding exchange rate dynamics is crucial for businesses engaged in international trade,
investors, and policymakers. It involves a continuous interplay of various economic, financial, and
geopolitical factors that collectively determine the relative value of currencies in the global market.

Global economic trends :

Global economic trends refer to the patterns and shifts in economic activities on a worldwide scale.
Currently, we witness a transition towards a digital economy, with technology influencing industries and
reshaping traditional business models. The COVID-19 pandemic accelerated remote work and e-
commerce, altering consumer behaviors. Sustainable practices gain prominence as nations emphasize
environmental responsibility. Geopolitical tensions impact trade, introducing uncertainties. Emerging
markets contribute significantly to global growth, while challenges like inflation and supply chain
disruptions influence economic trajectories. In summary, the interplay of technological advancements,
sustainability, geopolitical factors, and pandemic-related changes defines today's global economic
trends.

Social implications :
Economic decisions and policies carry profound social implications. Income inequality, a key concern,
can lead to disparities in education, healthcare, and opportunities. Unemployment and economic
downturns affect communities, impacting mental health and overall well-being. Environmental policies
influence public health and quality of life. Access to financial resources shapes social mobility.
Additionally, globalization can either foster cultural exchange or trigger cultural tensions. Balancing
economic goals with social considerations is crucial for inclusive growth and societal harmony.
Policymakers must navigate these intricate connections to ensure economic development benefits
society at large, addressing social challenges and fostering a more equitable future.

Employment Situation in Contemporary

Bangladesh
Bangladesh's GDP growth and its relation to employment

Sector-wise contribution to GDP and employment (agriculture, industry, services)

Economic policies and initiatives promoting employment

III. Labour Market Dynamics

Population demographics and workforce composition

Unemployment rates, underemployment, and disguised unemployment

Labour force participation rates across gender and age groups

IV. Employment Challenges

Informal sector employment and its implications

Skills gap and mismatch between education and industry requirements

Vulnerable employment conditions and safety issues

V. Government Initiatives and Policies

Analysis of government schemes promoting employment (e.g., Employment Generation Programs)

Vocational training and skill development initiatives

Foreign employment opportunities and remittances

VI. Impact of Technological Advancements

Automation and its impact on job displacement

Opportunities created by technological advancements in certain sectors

Strategies to address the challenges posed by technological disruption

VII. Social and Gender Perspectives

Gender disparities in employment and wage gaps

Social barriers affecting employment opportunities

Initiatives promoting gender equality in the workforce

VIII. Case Studies and Success Stories

Highlighting successful employment generation projects or initiatives

IX. Future Outlook and Recommendations

Projected trends in employment and economic growth

Policy recommendations to enhance employment opportunities

Suggestions for addressing challenges and fostering inclusive growth

Benefits and cost of inflation
Inflation can have both benefits and costs.

Benefits:

1. *Encourages Spending:* Mild inflation can encourage people to spend and invest rather than hoard
money, stimulating economic activity.

2. *Debts Eroded:* Inflation can erode the real value of debts, benefiting borrowers.

Costs:

1. *Reduced Purchasing Power:* Inflation decreases the purchasing power of money, leading to a
decline in real wages and living standards.

2. *Uncertainty:* High inflation creates uncertainty, making it challenging for businesses to plan for the
future.

3. *Distorted Price Signals:* Inflation can distort price signals, making it harder for businesses and
consumers to make informed economic decisions.

4. *Fixed Incomes Suffer:* Those on fixed incomes, like retirees, may struggle to maintain their standard
of living in the face of rising prices.

The overall impact depends on the rate and predictability of inflation, with moderate and stable inflation
generally considered more favorable.

Monetary policy challenges :

Managing inflation is a key challenge in monetary policy. Central banks aim to strike a balance, avoiding
both excessive inflation and deflation. Factors such as supply shocks, demand fluctuations, and global
economic conditions can complicate the task of maintaining a stable inflation rate. The challenge lies in
implementing effective policies to control inflation while supporting economic growth and employment..