L'inflation Et Ses Impacts

Summary

What is inflation?........................................2

Definition of inflation………………...2

Types of inflation……………………….4

Historical aspects of inflation………7

Inflation & money growth…………………9

The Inflation effects ………………………..13

Inflation and the rate of interest…13

The social costs of Inflation…………16

Inflation in Morocco ………………………19

How to control inflation………………….20

Conclusion……………………………………..23

………………………………………………..24

I. What is inflation?

1. Definition of inflation

Inflation is defined as the change in the level of prices. Most of the time, people mean the "Consumer Price Index" or "CPI" when they discuss inflation in a country. This is the change in the price "shopping basket" of consumer goods for a country that the national statistics agency has sampled over time on a monthly basis. The "core CPI" is the change in prices without the food and energy components, or "ex food and energy". Since food and energy prices are volatile, the "core CPI" is thought to be a more accurate measure of

Underlying inflation.

Here we see how inflation affects our ability to buy a $6 hammer with $10. By investing our $10 we maintain our purchasing power over time despite the effects

The main challenge in measuring inflation as the change in level of prices is establishing which prices to use for the calculation. National statistics agencies usually measure various inflation rates:

• the "raw materials price index" (RPI), or so-called "crude goods" price index, which measures commodity price inflation;

• the "industrial product price index" (IPPI), which measures changes in the wholesale price of goods at 'the factory door'; and

• the "consumer price index" (CPI), which measures the change in retail prices.

Since economists, market strategists, and politicians are usually concerned with changes in consumer prices, the CPI is the most frequently used measure of price change. Across a country, however, prices vary with market conditions, availability, transportation costs and other factors.

2. Types of inflation:

Economists distinguish between two types of inflation:

• Demand-pull inflation – occurs when there is too much money chasing too few goods, because the demand for current output by consumers, investors and government exceeds available supply. Because, under such conditions, resources are fully employed, the business sector cannot respond to this excess demand by expanding output, so they typically react by pushing up prices instead. If these conditions are sustained, the result is demand-pull inflation.

• Supply-side inflation or cost-push inflation - occurs when a firm passes on an increase in production costs to the consumer in the form of higher prices.

• The inflationary effect of increased costs can be the result of:

i) Increased wages leading to:

a) Wage– price spiral, which occurs when price increases spark off a series of wage demands which lead to further price increases and so on.

b) a wage-wage spiral, which occurs when one group of workers receive a wage increase which sparks off a series of wage demands from other workers

ii) Increased import prices which can be the result of:

a) A rise in world prices for imported raw materials

b) A depreciation in the local currency.

Central banks can impact inflation to a significant extent through setting interest rates and the use of monetary policy. High interest rates are the method of fighting inflation that Central Banks often resort to in order to fight inflation, using the resulting decline in production and unemployment to prevent price increases. However different central bankers have varying approaches to fighting inflation.

Some emphasize increasing interest rates by reducing the money supply through monetary policy to fight inflation. Another school of thought advocates fighting inflation by pegging the exchange rate between the currency and a stable reference such as the dollar. These different methods have met with differing measures of success: in spite of efforts to curb inflation, some nations have experienced double-digit, triple-digit or even astronomical annual rates of inflation in recent years.

Demand-pull inflation

Cost-push inflation

3. Historical aspects of inflation

For most of the twentieth century (1914–2000), inflation has averaged 3.5 percent.

It took six years, from 1914 to 1920, for the CPI to double. The longest doubling period was the fifty-one years between 1920 and 1971. Most recently, it took twenty-three years, from 1983 to 2006, for the CPI to double.

Inflation rates were most volatile when William P.G. Harding was chairman of the Federal Reserve Board, from 1916 to 1922. During that time, inflation hit both its highest and its lowest levels of the twentieth century: 18.0 percent in 1918 and -10.5 percent in 1921. In contrast, the past twenty or so years, primarily with Alan Greenspan as chairman, have been relatively stable, with inflation ranging from a high of 5.4 percent to a low of 1.6 percent.

Inflation tends to be high during postwar periods. In the three-year period after World War I, World War II, and the Vietnam War, inflation averaged

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