Assignmenti1

InternationaliBusiness

StudentiIDiA00164911

Submittediby:i-iVeerpalikaur

Submitteditoi:-iProf.iKaraniSabharwal
Theirateiofiriseiinitheipricesiofivariousigoodsiandiservicesioveriaigivenitimeiframe,itypicallyiai

year,iisiwhatiisiknowniasiinflation.

Theirateiatiwhichipricesiriseioveritimeiisicallediinflation.

Aicountry'sicostiofilivingiorigeneraliriseiinipricesiareiexamplesiofibroadimeasuresiofiinflation.

Inflationiisiaimeasureiofihowimuchitheipriceiofiaiparticularigoodioriserviceihasiincreasedioverit

ime,itypicallyioveriaiyear,iregardlessiofitheicontext.

measureiinflation.iTheipriceiofimanyigoodsiandiservicesiasiwelliasiaiconsumer'sishareiofitheiho

useholdibudgetiaffectiaiconsumer'sicostiofiliving.

Governmentiagenciesiconductihouseholdisurveysitoiidentifyiaibasketioficommonlyipurchasediit

emsianditrackitheicostiofipurchasingithisibasketioveritimeiiniorderitoimeasureitheicostiofilivingi

foritheiaverageiconsumer.

(InitheiUnitediStates,ihousingicosts,isuchiasimortgagesiandirent,imakeiupitheimajorityiofitheico

nsumeribasket.)iTheiconsumeripriceiindexi(CPI)iisitheicostiofithisibasketiatiaigivenitimeiwheni

compareditoiaibaseiyear.iConsumeripriceiinflation,itheimosticommonimeasureiofiinflation,iisith

eipercentageichangeiinitheiCPIioveriaigiveniperiod.
(Foriinstance,iifitheibaseiyeariCPIiisi100ianditheicurrentiCPIiisi110,itheniinflationioveritheicour

seiofitheiperiodiisi10%.)iByiexcludingipricesisetibyitheigovernmentianditheimoreivolatileiprices

iofigoodsilikeifoodiandienergy,iwhichiareimostiaffectedibyiseasonalifactorsioritemporaryisupply

iconditions,icoreiconsumeriinflationifocusesionitheiunderlyingiandipersistentitrendsiiniinflation.

TheiGDPideflatoriisimoreicurrentithanitheiCPIibasket,iwhichiisilargelyistatic,iandiitsicontentich

angesiannuallyitoishowihowitheipricesiofieverythingiproducediinitheieconomyichangeioveritime

However,ibecauseiitialsoiincludesinon-

consumableigoodsilikeimilitaryispending,itheideflatoriisinotiaigoodiindicatorioficostiofiliving.

Bothipositiveiandinegativeiaspects:iIfitheinominaliincomeithatihouseholdsireceiveiasicirculating

icurrencyidoesinotiriseiatitheisameirateiasiprices,itheyiwillihaveilessimoneyitoispend,iwhichiwil

liexacerbateitheisituation.

Toiputiitianotheriway,itheiriinflation-adjustedirealiincome,ioripurchasingipower,idecreases.

Aiperson'sistandardiofilivingiisideterminedibyitheirirealiincome.

Someiconsumers'ipurchasingipoweriwilliinevitablyibeierodediasiairesultiofiunevenipriceiincreas

esiinianiinflationaryienvironment.

Concerns:-
Inimosticases,iaicountry'sicostiofilivingiorioverallipriceiriseiisiuseditoimeasureiinflation.

Regardlessiofitheicontext,iinflationiisiaimeasureiofihowimuchiaiparticularigoodioriserviceihasii

ncreasediinipriceioveritime,itypicallyioveriaiyear.

MeasuringiInflationiAiconsumer'sicostiofilivingiisiinfluencedibyitheipriceiofimanyigoodsiandise

rvicesiasiwelliasitheirishareiofitheihouseholdibudget.

Iniorderitoimeasureitheicostiofilivingiforitheiaverageiconsumer,igovernmentiagenciesiconductih

ouseholdisurveysitoiidentifyiaibasketioficommonlyipurchasediitemsianditrackitheicostiofipurcha

singithisibasketioveritime.

(TheimajorityiofitheiconsumeribasketiinitheiUnitediStatesiisimadeiupiofihousingiexpensesilikei

mortgagesiandirent.)iTheicostiofithisibasketiinicomparisonitoiaibaseiyeariisitheiconsumeripriceii

ndexi(CPI).

AdvantagesiandidisadvantagesiIfinominaliincomeireceivediasicirculatingicurrencyidoesinotirisei

atitheisameirateiasiprices,ihouseholdsiwillihaveilessimoneyitoispend.

Unevenipriceiincreasesiinianiinflationaryienvironmentiwilliunavoidablyireduceitheipurchasingip

oweriofisomeicustomers.

Solutions:-

• TheiBankiofiCanadaiinfluencesishort-

termiinterestiratesiwheniitisetsitheiBankiRateitoiachieveiairateiofimonetaryiexpansionith

atiisiwithinitheirangeiofitheitargetirangeiforicontrollingiinflation.
• Aisetiofigoalsitoibringiinflationidownitoitheimidpointiofiairangeiofi1%itoi3%ibyitheiend

iofi1995iwereijointlyiannouncediiniFebruaryi1991ibyitheifederaligovernmentianditheiBa

nkiofiCanada.

• TheigovernmentianditheiBankiintenditoidetermineitheilong-

termigoaliofimonetaryipolicyithatiisiconsistentiwithipriceistabilityibyitheiendiofi2001.

• Temporaryichangesiinienergyiandifoodiprices,iasiwelliasishiftsiiniindirectitaxes,iaccount

iforiaisignificantiportioniofitheishort-termimovementiinitheiCPI.