Impact of declining inflation rates

By Richard Vague Monetarist theory, which came to dominate economic thinking in the s and the decades that followed, holds that rapid money supply growth is the cause of inflation.

Impact of declining inflation rates

Introduction

September 18th, by Brian Kantor The problem with much of the data that makes up the GDP is that it is out of date. Knowing how well or badly the economy is now doing becomes a matter of judgment and estimation rather than fact.

Impact of declining inflation rates

Nevertheless despite being after the event they came in less than expected and moved significantly the markets in the rand and RSA debt- and the JSE more generally- sending the rand weaker and bond yields higher and the JSE lower.

That is when delivered by retailers and others in the supply and demand chains of the economy. These estimates are then revised, sometimes significantly, and often more than once, as more complete estimates become available.

For example retail sales or vehicle sales or credit and debt account transactions. But again such important indicators about what has gone on in the economy may also be based on sample surveys that take time to collect that make them out of date.

In economics, inflation is a sustained increase in the price level of goods and services in an economy over a period of time. When the 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. Nov 12,  · The recent high rates of inflation, and the public’s memory of even higher rates in the past, have severely harmed Argentina’s economy. Because market interest rates rise to compensate for high inflation, even the government must now pay an interest rate of about 25% to borrow in . May 10,  · Falling black homeownership rates have some financial advisers very concerned about the effect this could have on retirement security of African Americans.

For example the recently released retail sales statistics issued by Stats SA date back to July Moreover they are actual hard numbers and not based on sample surveys. Vehicle sales can be regarded as highly representative of the appetite for durable goods exercised by households and for capex by firms and for the credit used to fund purchases of new vehicles — not only cars that may be rented or leased, but commercial vehicles of all kinds.

Cash issued on demand for it by the Reserve Bank is demanded by households to fund their intended expenditure.

These demands have a strong seasonal component rising strongly in December and before Easter holidays- that unfortunately for the statistician can come earlier or later complicating the seasonal adjustments.

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Despite the fast growing exchanges facilitated by credit and debit cards and on-line the demand for cash and its supply continues to grow closely in line with economic activity. This makes it very useful as an up to date indicator of current spending that will only be revealed officially much later.

We combine vehicle sales and the real note issue, real cash, giving both equal weight to form our Hard Number Index of the current state of the SA economy.

We deflate the note issue by the Consumer Price Index to establish the real supply of cash. The HNI suggests that economic activity in SA is growing but very slowly and is to some extent recovering from weaker growth of No acceleration of growth rates can be inferred from the pace of vehicle sales and real cash in August The economy appears to be stuck in an extended phase of marginally positive growth.

No lift off appears under way a conclusion that would not surprise may observers and participants in the SA economy Figure 2. Retail sales in SA exclude sales of vehicles- new and used as well as of the petrol or diesel used to drive them.

This retail recovery was well correlated with a strong pick up from negative rates in the real cash cycle. It was lower inflation particularly of retail prices rather than an acceleration in the supply of notes that was responsible for this stimulation of demand.

It is perhaps encouraging to note that while the retail sales volume cycle has turned sharply down- the real supply of cash continues to grow at a faster rate. See figure 6 below Figure 6; The real retail sales and real cash cycles smoothed growth Source: Clearly retailers and their local suppliers are not enjoying much power to raise prices and to pass on cost increases.

This pressure on margins is however better news for consumers than firms and helps to sustain their willingness to spend more. We compare headline and much lower retail or what may be described as business inflation in figure 7 below.Alternate Inflation Charts.

The CPI chart on the home page reflects our estimate of inflation for today as if it were calculated the same way it was in By Fernando Martin, Senior Economist. The Federal Reserve’s main instrument for achieving stable prices and maximum employment is the target for the federal funds rate.

The idea is that by affecting the rate at which banks lend to each other overnight, other interest rates may be affected.

Impact of declining inflation rates

The twin factors that affect a bond’s price are inflation and changing interest rates. A rise in either interest rates or the inflation rate will tend to cause bond prices to drop. Inflation and interest rates behave similarly to bond yields, moving in the opposite direction from bond prices.

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Inflation In this article, the author explains that; Inflation tends to slow across the urbanized world in spite of the ultralow interest tariff and the unparalleled money-laundering activities which poses a quandary for the central kitty and the rest of the major central-banks as they plan their subsequent policy moves.

Mr. Michael Pento serves as the President and founder of Pento Portfolio Strategies. He is a well-established specialist in the Austrian School of economics and a regular guest on CNBC, Bloomberg, FOX Business News and other national media outlets.

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