term paper about inflation

Understanding US inflation during the COVID-19 era

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Laurence ball , laurence ball professor of economics - johns hopkins university daniel leigh , and daniel leigh division chief, world economic studies division - imf research department prachi mishra prachi mishra chief of the systemic issues division, research department - international monetary fund.

September 7, 2022

The paper summarized here is part of the Fall 2022 edition of the Brookings Papers on Economic Activity (BPEA) , the leading conference series and journal in economics for timely, cutting-edge research about real-world policy issues. The conference draft of this paper was presented at the Fall 2022 BPEA conference . The final version was published in the Fall 2022 issue by Johns Hopkins University Press.

See the Fall 2022 BPEA event page to watch conference recordings and read conference drafts of all the papers from this edition.  Submit a proposal to present at a future BPEA conference  here .

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The Federal Reserve likely will need to push unemployment far higher than its 4.1 percent projection if it is to succeed in bringing inflation down to its 2 percent target by the end of 2024, suggests a paper discussed at the Brookings Papers on Economic Activity (BPEA) conference on September 8.

The paper, Understanding US Inflation During the COVID-19 Era , analyzes why the pandemic-related surge in inflation has persisted and runs simulations under different assumptions to look at where inflation might be heading.

According to the authors—Laurence Ball of Johns Hopkins University and Daniel Leigh and Prachi Mishra of the International Monetary Fund—it is unlikely, but not impossible, for the Fed to achieve the soft landing (substantially lower inflation with only modestly higher unemployment) that it projected in June.

The median Fed policymaker projected 4.1 percent unemployment at the end of 2024, up only modestly from 3.7 percent in July. The median projection for inflation, as measured by the Commerce Department’s personal consumption expenditures (PCE) price index, was 2.2 percent at the end of 2024, down from a four-decade high of 6.8 percent in June. The PCE Index eased modestly in July (prices were up 6.3 percent from a year earlier). The Labor Department’s more widely known consumer price index (CPI) also hit a 40-year high in June (9.1 percent) before easing slightly to 8.5 percent in July.

“If either the labor market doesn’t behave, or expectations don’t behave, the small increase in unemployment the Fed projects won’t be enough.”

So far this year the Fed has raised its short-term interest rate target by 2.25 percentage points, from near zero, and projected in June that to tame inflation it would need to raise the target by only an additional percentage point this year and a half percentage point next year.

Fed policymakers, as well as most economists (including the paper’s authors), had expected that the upturn in inflation that began in March 2021 would prove transitory. The paper cited three reasons why those expectations proved to be wrong: first, unforeseeable events such as Russia’s invasion of Ukraine and the persistence of pandemic supply-chain disruptions; second, failure to account for the pass-through of specific price shocks (such as to energy and auto prices) into the core, or underlying, rate of inflation; and, third a focus on the unemployment rate (which has only recently fallen back to pre-pandemic levels) as an indicator of labor market tightness rather than the very high ratio of job vacancies to unemployed workers (V/U).

The very high V/U ratio in 2021 and this year can explain three-quarters of the rise in monthly core CPI inflation as measured by a Federal Reserve Bank of Cleveland index that strips out the effects of unusually large price changes in certain industries, according to the paper. Some of the consumer demand that fueled the economy, as well as the labor market tightness, in turn, can be explained by the Biden administration’s $1.9 trillion American Rescue Plan enacted in March 2021. Without it, the authors estimate that annualized monthly core inflation would have been 3.7 percent in July rather than 6.5 percent.

According to the paper, whether the Fed can achieve its objectives depends on whether it is possible to slow demand in such a way that vacancies decrease but unemployment doesn’t rise (returning the V/U ratio to its pre-pandemic norm) and on whether consumers and businesses start to expect that high inflation will continue for the longer term, and thus plan for it. Under optimistic assumptions for both the V/U ratio and long-term inflation expectations (and assuming the Fed’s 4.1 percent unemployment projection proves correct), the paper projects the Fed will bring core inflation down close to its target by the end of 2024. However, under the most pessimistic assumptions for both the V/U ratio and inflation expectations, core inflation rises to about 8.8 percent if unemployment moves up only to 4.1 percent.

“If you make quite-optimistic assumptions, we might get something close to what the Fed expects,” Ball said in an interview with The Brookings Institution. “But if either the labor market doesn’t behave, or expectations don’t behave, the small increase in unemployment the Fed projects won’t be enough. Either inflation will stay substantially higher, or we will have higher unemployment and a substantial economic slowdown.”

Ball, Laurence, Daniel Leigh, and Prachi Mishra. 2022. “Understanding US Inflation during the COVID-19 Era.” Brookings Papers on Economic Activity , Fall. 1-54.

Furman, Jason. 2022. “Comment on ‘Understanding US Inflation during the COVID-19 Era’.” Brookings Papers on Economic Activity , Fall. 55-65.

Şahin, Ayşegül. 2022. “Comment on ‘Understanding US Inflation during the COVID-19 Era’.” Brookings Papers on Economic Activity , Fall. 65-76.

Discussants

Daniel Leigh and Prachi Mishra are employees of the International Monetary Fund, which conducts a review of all externally published pieces. The authors did not receive financial support from any firm or person for this article or from any firm or person with a financial or political interest in this article. The authors are not currently an officer, director, or board member of any organization with a financial or political interest in this article.

David Skidmore authored the summary language for this paper. Becca Portman assisted with data visualization.

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The Long-term Effects of Inflation on Inflation Expectations

We study the long-term effects of inflation surges on inflation expectations. German households living in areas with higher local inflation during the hyperinflation of the 1920s expect higher inflation today, after partialling out determinants of historical inflation and current inflation expectations . Our evidence points towards transmission of inflation experiences from parents to children and through collective memory. Differential historical inflation also modulates the updating of expectations to current inflation, the response to economic policies affecting inflation, and financial decisions. We obtain similar results for Polish households residing in formerly German areas. Overall, our findings are consistent with inflationary shocks having a long-lasting impact on attitudes towards inflation.

Financial support from the Swiss National Science Foundation (grant number 207668) and the sponsors association of the Swiss Institute of Banking and Finance of the University of St. Gallen is gratefully acknowledged. The views expressed herein are those of the authors and do not necessarily reflect the views of the National Bureau of Economic Research.

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What is inflation?

Inflation has been top of mind for many over the past few years. But how long will it persist? In June 2022, inflation in the United States jumped to 9.1 percent, reaching the highest level since February 1982. The inflation rate has since slowed in the United States , as well as in Europe , Japan , and the United Kingdom , particularly in the final months of 2023. But even though global inflation is higher than it was before the COVID-19 pandemic, when it hovered around 2 percent, it’s receding to historical levels . In fact, by late 2022, investors were predicting that long-term inflation would settle around a modest 2.5 percent. That’s a far cry from fears that long-term inflation would mimic trends of the 1970s and early 1980s—when inflation exceeded 10 percent.

Get to know and directly engage with senior McKinsey experts on inflation.

Ondrej Burkacky is a senior partner in McKinsey’s Munich office, Axel Karlsson is a senior partner in the Stockholm office, Fernando Perez is a senior partner in the Miami office, Emily Reasor is a senior partner in the Denver office, and Daniel Swan is a senior partner in the Stamford, Connecticut, office.

Inflation refers to a broad rise in the prices of goods and services across the economy over time, eroding purchasing power for both consumers and businesses. Economic theory and practice, observed for many years and across many countries, shows that long-lasting periods of inflation are caused in large part by what’s known as an easy monetary policy . In other words, when a country’s central bank sets the interest rate too low or increases money growth too rapidly, inflation goes up. As a result, your dollar (or whatever currency you use) will not go as far  today as it did yesterday. For example: in 1970, the average cup of coffee in the United States cost 25 cents; by 2019, it had climbed to $1.59. So for $5, you would have been able to buy about three cups of coffee in 2019, versus 20 cups in 1970. That’s inflation, and it isn’t limited to price spikes for any single item or service; it refers to increases in prices across a sector, such as retail or automotive—and, ultimately, a country’s economy.

How does inflation affect your daily life? You’ve probably seen high rates of inflation reflected in your bills—from groceries to utilities to even higher mortgage payments. Executives and corporate leaders have had to reckon with the effects of inflation too, figuring out how to protect margins while paying more for raw materials.

But inflation isn’t all bad. In a healthy economy, annual inflation is typically in the range of two percentage points, which is what economists consider a sign of pricing stability. When inflation is in this range, it can have positive effects: it can stimulate spending and thus spur demand and productivity when the economy is slowing down and needs a boost. But when inflation begins to surpass wage growth, it can be a warning sign of a struggling economy.

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Inflation may be declining in many markets, but there’s still uncertainty ahead: without a significant surge in productivity, Western economies may be headed for a period of sustained inflation or major economic reset , as Japan has experienced in the first decades of the 21st century.

What does seem to be changing are leaders’ attitudes. According to the 2023 year-end McKinsey Global Survey on economic conditions , respondents reported less fear about inflation as a risk to global and domestic economic growth . But this sentiment varies significantly by region: European respondents were most concerned about the effects of inflation, whereas respondents in North America offered brighter views.

What causes inflation?

Monetary policy is a critical driver of inflation over the long term. The current high rate of inflation is a result of increased money supply , high raw materials costs , labor mismatches , and supply disruptions —exacerbated by geopolitical conflict .

In general, there are two primary types, or causes, of short-term inflation:

• Demand-pull inflation occurs when the demand for goods and services in the economy exceeds the economy’s ability to produce them. For example, when demand for new cars recovered more quickly than anticipated from its sharp dip at the beginning of the COVID-19 pandemic, an intervening shortage  in the supply of semiconductors  made it hard for the automotive industry to keep up with this renewed demand. The subsequent shortage of new vehicles resulted in a spike in prices for new and used cars.
• Cost-push inflation occurs when the rising price of input goods and services increases the price of final goods and services. For example, commodity prices spiked sharply  during the pandemic as a result of radical shifts in demand, buying patterns, cost to serve, and perceived value across sectors and value chains. To offset inflation and minimize impact on financial performance, industrial companies were forced to increase prices for end consumers.

Learn more about McKinsey’s Growth, Marketing & Sales  Practice.

What are some periods in history with high inflation?

Economists frequently compare the current inflationary period with the post–World War II era , when price controls, supply problems, and extraordinary demand in the United States fueled double-digit inflation gains—peaking at 20 percent in 1947—before subsiding at the end of the decade. Consumption patterns today have been similarly distorted, and supply chains have been disrupted  by the pandemic.

The period from the mid-1960s through the early 1980s in the United States, sometimes called the “Great Inflation,” saw some of the country’s highest rates of inflation, with a peak of 14.8 percent in 1980. To combat this inflation, the Federal Reserve raised interest rates to nearly 20 percent. Some economists attribute this episode partially to monetary policy mistakes rather than to other causes, such as high oil prices. The Great Inflation signaled the need for public trust  in the Federal Reserve’s ability to lessen inflationary pressures.

Inflation isn’t solely a modern-day phenomenon, of course. One very early example of inflation comes from Roman times, from around 200 to 300 CE. Roman leaders were struggling to fund an army big enough to deal with attackers from multiple fronts. To help, they watered down  the silver in their coinage, causing the value of money to slowly fall—and inflation to pick up. This led merchants to raise their prices, causing widespread panic. In response, the emperor Diocletian issued what’s now known as the Edict on Maximum Prices, a series of price and wage controls designed to stop the rise of prices and wages (one helpful control was a maximum price for a male lion). But because the edict didn’t address the root cause of inflation—the impure silver coin—it didn’t fix the problem.

How is inflation measured?

Statistical agencies measure inflation first by determining the current value of a “basket” of various goods and services consumed by households, referred to as a price index. To calculate the rate of inflation over time, statisticians compare the value of the index over one period with that of another. Comparing one month with another gives a monthly rate of inflation, and comparing from year to year gives an annual rate of inflation.

In the United States, the Bureau of Labor Statistics publishes its Consumer Price Index (CPI), which measures the cost of items that urban consumers buy out of pocket. The CPI is broken down by region and is reported for the country as a whole. The Personal Consumption Expenditures (PCE) price index —published by the US Bureau of Economic Analysis—takes into account a broader range of consumer spending, including on healthcare. It is also weighted by data acquired through business surveys.

How does inflation affect consumers and companies differently?

Inflation affects consumers most directly, but businesses can also feel the impact:

• Consumers lose purchasing power when the prices of items they buy, such as food, utilities, and gasoline, increase. This can lead to household belt-tightening and growing pessimism about the economy .
• Companies lose purchasing power and risk seeing their margins decline , when prices increase for inputs used in production. These can include raw materials like coal and crude oil , intermediate products such as flour and steel, and finished machinery. In response, companies typically raise the prices of their products or services to offset inflation, meaning consumers absorb these price increases. The challenge for many companies is to strike the right balance between raising prices to cover input cost increases while simultaneously ensuring that they don’t raise prices so much that they suppress demand.

How can organizations respond to high inflation?

During periods of high inflation, companies typically pay more for materials , which decreases their margins. One way for companies to offset losses and maintain margins is by raising prices for consumers. However, if price increases are not executed thoughtfully, companies can damage customer relationships and depress sales —ultimately eroding the profits they were trying to protect.

When done successfully, recovering the cost of inflation for a given product can strengthen relationships and overall margins. There are five steps companies can take to ADAPT  (adjust, develop, accelerate, plan, and track) to inflation:

• Adjust discounting and promotions and maximize nonprice levers. This can include lengthening production schedules or adding surcharges and delivery fees for rush or low-volume orders.
• Develop the art and science of price change. Instead of making across-the-board price changes, tailor pricing actions to account for inflation exposure, customer willingness to pay, and product attributes.
• Accelerate decision making tenfold. Establish an “inflation council” that includes dedicated cross-functional, inflation-focused decision makers who can act quickly and nimbly on customer feedback.
• Plan options beyond pricing to reduce costs. Use “value engineering” to reimagine a portfolio and provide cost-reducing alternatives to price increases.
• Track execution relentlessly. Create a central supporting team to address revenue leakage and to manage performance rigorously. Traditional performance metrics can be less reliable when inflation is high .

Beyond pricing, a variety of commercial and technical levers can help companies deal with price increases in an inflationary market , but other sectors may require a more tailored response to pricing.

Learn more about our Financial Services , Industrials & Electronics , Operations , Strategy & Corporate Finance , and  Growth, Marketing & Sales Practices.

How can CEOs help protect their organizations against uncertainty during periods of high inflation?

In today’s uncertain environment, in which organizations have a much wider range of stakeholders, leaders must think about performance beyond short-term profitability. CEOs should lead with the complete business cycle and their complete slate of stakeholders in mind.

CEOs need an inflation management playbook , just as central bankers do. Here are some important areas to keep in mind while scripting it:

• Design. Leaders should motivate their organizations to raise the profile of design  to a C-suite topic. Design choices for products and services are critical for responding to price volatility, scarcity of components, and higher production and servicing costs.
• Supply chain. The most difficult task for CEOs may be convincing investors to accept supply chain resiliency as the new table stakes. Given geopolitical and economic realities, supply chain resiliency has become a crucial goal for supply chain leaders, alongside cost optimization.
• Procurement. CEOs who empower their procurement  organizations can raise the bar on value-creating contributions. Procurement leaders have told us time and again that the current market environment is the toughest they’ve experienced in decades. CEOs are beginning to recognize that purchasing leaders can be strategic partners by expanding their focus beyond cost cutting to value creation.
• Feedback. A CEO can take a lead role in playing back the feedback the organization is hearing. In today’s tight labor market, CEOs should guide their companies to take a new approach to talent, focusing on compensation, cultural factors, and psychological safety .
• Pricing. Forging new pricing relationships with customers will test CEOs in their role as the “ultimate integrator.” Repricing during inflationary times is typically unpleasant for companies and customers alike. With setting new prices, CEOs have the opportunity to forge deeper relationships with customers, by turning to promotions, personalization , and refreshed communications around value.
• Agility. CEOs can strive to achieve a focus based more on strategic action and less on firefighting. Managing the implications of inflation calls for a cross-functional, disciplined, and agile response.

A practical example: How is inflation affecting the US healthcare industry?

Consumer prices for healthcare have rarely risen faster than the rate of inflation—but that’s what’s happening today. The impact of inflation on the broader economy has caused healthcare costs to rise faster than the rate of inflation. Experts also expect continued labor shortages in healthcare—gaps of up to 450,000 registered nurses and 80,000 doctors —even as demand for services continues to rise. This drives up consumer prices and means that higher inflation could persist. McKinsey analysis as of 2022 predicted that the annual US health expenditure is likely to be $370 billion higher by 2027 because of inflation.

This climate of risk could spur healthcare leaders to address productivity, using tech levers to boost productivity while also reducing costs. In order to weather the storm, leaders will need to quickly set high aspirations, align their organizations around them, and execute with speed .

What is deflation?

If inflation is one extreme of the pricing spectrum, deflation is the other. Deflation occurs when the overall level of prices in an economy declines and the purchasing power of currency increases. It can be driven by growth in productivity and the abundance of goods and services, by a decrease in demand, or by a decline in the supply of money and credit.

Generally, moderate deflation positively affects consumers’ pocketbooks, as they can purchase more with less money. However, deflation can be a sign of a weakening economy, leading to recessions and depressions. While inflation reduces purchasing power, it also reduces the value of debt. During a period of deflation, on the other hand, debt becomes more expensive. And for consumers, investments such as stocks, corporate bonds, and real estate become riskier.

A recent period of deflation in the United States was the Great Recession, between 2007 and 2008. In December 2008, more than half of executives surveyed by McKinsey  expected deflation in their countries, and 44 percent expected to decrease the size of their workforces.

When taken to their extremes, both inflation and deflation can have significant negative effects on consumers, businesses, and investors.

For more in-depth exploration of these topics, see McKinsey’s Operations Insights  collection. Learn more about Operations consulting , and check out operations-related job opportunities  if you’re interested in working at McKinsey.

Articles referenced:

• “ Investing in productivity growth ,” March 27, 2024, Jan Mischke , Chris Bradley , Marc Canal, Olivia White , Sven Smit , and Denitsa Georgieva
• “ Economic conditions outlook during turbulent times, December 2023 ,” December 20, 2023
• “ Forward Thinking on why we ignore inflation—from ancient times to the present—at our peril with Stephen King ,” November 1, 2023
• “ Procurement 2023: Ten CPO actions to defy the toughest challenges ,” March 6, 2023, Roman Belotserkovskiy , Carolina Mazuera, Marta Mussacaleca , Marc Sommerer, and Jan Vandaele
• “ Why you can’t tread water when inflation is persistently high ,” February 2, 2023, Marc Goedhart and Rosen Kotsev
• “ Markets versus textbooks: Calculating today’s cost of equity ,” January 24, 2023, Vartika Gupta, David Kohn, Tim Koller , and Werner Rehm  
• “ Inflation-weary Americans are increasingly pessimistic about the economy ,” December 13, 2022, Gonzalo Charro, Andre Dua , Kweilin Ellingrud , Ryan Luby, and Sarah Pemberton
• “ Inflation fighter and value creator: Procurement’s best-kept secret ,” October 31, 2022, Roman Belotserkovskiy , Ezra Greenberg , Daphne Luchtenberg, and Marta Mussacaleca
• “ Prime Numbers: Rethink performance metrics when inflation is high ,” October 28, 2022, Vartika Gupta, David Kohn, Tim Koller , and Werner Rehm
• “ The gathering storm: The threat to employee healthcare benefits ,” October 20, 2022, Aditya Gupta , Akshay Kapur , Monisha Machado-Pereira , and Shubham Singhal
• “ Utility procurement: Ready to meet new market challenges ,” October 7, 2022, Roman Belotserkovskiy , Abhay Prasanna, and Anton Stetsenko
• “ The gathering storm: The transformative impact of inflation on the healthcare sector ,” September 19, 2022, Addie Fleron, Aneesh Krishna , and Shubham Singhal
• “ Pricing during inflation: Active management can preserve sustainable value ,” August 19, 2022, Niels Adler and Nicolas Magnette
• “ Navigating inflation: A new playbook for CEOs ,” April 14, 2022, Asutosh Padhi , Sven Smit , Ezra Greenberg , and Roman Belotserkovskiy
• “ How business operations can respond to price increases: A CEO guide ,” March 11, 2022, Andreas Behrendt ,  Axel Karlsson , Tarek Kasah, and  Daniel Swan
• “ Five ways to ADAPT pricing to inflation ,” February 25, 2022,  Alex Abdelnour , Eric Bykowsky, Jesse Nading,  Emily Reasor , and Ankit Sood
• “ How COVID-19 is reshaping supply chains ,” November 23, 2021,  Knut Alicke ,  Ed Barriball , and Vera Trautwein
• “ Navigating the labor mismatch in US logistics and supply chains ,” December 10, 2021,  Dilip Bhattacharjee , Felipe Bustamante, Andrew Curley, and  Fernando Perez
• “ Coping with the auto-semiconductor shortage: Strategies for success ,” May 27, 2021,  Ondrej Burkacky , Stephanie Lingemann, and Klaus Pototzky

This article was updated in April 2024; it was originally published in August 2022.

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Inflation Is Stubborn. Is the Federal Budget Deficit Making It Worse?

Economists are divided over whether the growing amount of federal borrowing is fueling demand and driving up prices.

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By Jim Tankersley

Jim Tankersley covers economic policy from the White House

A crucial question is hanging over the American economy and the fall presidential election: Why are consumer prices still growing uncomfortably fast , even after a sustained campaign by the Federal Reserve to slow the economy by raising interest rates?

Economists and policy experts have offered several explanations. Some are essentially quirks of the current economic moment, like a delayed, post-pandemic surge in the cost of home and auto insurance . Others are long-running structural issues, like a lack of affordable housing that has pushed up rents in big cities like New York as would-be tenants compete for units.

But some economists, including top officials at the International Monetary Fund, said that the federal government bore some of the blame because it had continued to pump large amounts of borrowed money into the economy at a time when the economy did not need a fiscal boost.

That borrowing is a result of a federal budget deficit that has been elevated by tax cuts and spending increases. It is helping to fuel demand for goods and services by channeling money to companies and people who then go out and spend it.

I.M.F. officials warned that the deficit was also increasing prices. In a report earlier this month, they wrote that while America’s recent economic performance was impressive, it was fueled in part by a pace of borrowing “that is out of line with long-term fiscal sustainability.”

The I.M.F. said that U.S. fiscal policies were adding about a half a percentage point to the national inflation rate and raising “short-term risks to the disinflation process” — essentially saying that the government was working at cross-purposes with the Fed.

Biden administration economists, and some analysts on Wall Street, reject that view. Administration officials said that the analysis underlying the I.M.F.’s claims was implausible. That’s in part because the report found that federal policy was adding just as much to inflation currently as it did two years ago, at a time when direct payments to consumers and other programs from President Biden’s 2021 stimulus bill were increasing spending across the economy.

Administration officials pointed to other measures of fiscal policy , including a continuing analysis by the Brookings Institution in Washington, that suggested that government tax and spending policies were not significantly adding to economic growth or inflation now or in the recent past.

“I don’t think the recent inflation record supports an excessive demand story,” Jared Bernstein, the chairman of the White House Council of Economic Advisers, said in an interview. “I think what we’ve seen is that as supply chains have unsnarled, demand in the job market has cooled somewhat. We’ve been able to maintain historically low unemployment while getting significant disinflation.”

Mr. Bernstein added that, while administration officials were careful not to comment on the central bank’s interest rate decisions, “our fiscal stance is not fighting the Fed.”

The debate is important for how the Fed, which bears primary responsibility for controlling price growth, sets policy in the months ahead.

Investors entered the year expecting Fed officials to cut interest rates several times, after price growth slowed rapidly in 2023 and began to approach the central bank’s target level of 2 percent per year. They have revised those forecasts as new data show that progress stalling out and, by many measures, beginning to reverse.

How policymakers view the interplay between deficits and inflation could also shape decisions by the next president and Congress. If re-elected, Mr. Biden said that he would seek to reduce deficits by about $3 trillion over a decade, primarily by raising taxes on high earners and corporations. His Republican opponent, former President Donald J. Trump, has repeated his past — and unfulfilled — promises to eliminate the national debt , while also pushing for an extension of his 2017 tax cuts that could add trillions to deficits.

Both presidents’ policies, along with decisions by presidents before them , have contributed to the nation’s current fiscal imbalance. The deficit spiked when Mr. Trump, and then Mr. Biden, signed relief bills for people and businesses amid the coronavirus pandemic. It fell in the 2022 fiscal year but effectively doubled last year .

The deficit is now larger, as a share of the economy, than is historically normal for this point in an economic recovery — when unemployment is low and economic growth remains strong.

That is even true if you exclude the costs of servicing the government’s mounting debt load, which jumped last year as the Fed raised interest rates, a measure economists call the “primary deficit.” When properly measured, the primary deficit last year was equal to about 5 percent of the economy’s annual output. Data from the nonpartisan Congressional Budget Office suggest that it was the sixth-highest primary deficit of any year since 1962; the other five all came during, or immediately after, the pandemic or the 2008 financial crisis.

High deficits could affect inflation in a few ways. They could increase demand for goods or services that remain in relatively short supply, driving up prices. They could affect consumers’ views about how much inflation they expect in the future and chip away at the effectiveness of Fed rate increases to slow growth, said Joseph H. Davis, the chief global economist at the investment firm Vanguard.

Mr. Davis said that the shift from a declining deficit to a rising one was most likely adding modestly to price growth and making the Fed’s job more difficult: “What used to be a tailwind on inflation has become more of a headwind,” he said.

The deficit increase last year reflected several factors, including volatile capital gains tax collections and the effects of natural disasters on tax filing. It also reflected increased government spending and tax breaks signed into law by Mr. Biden. A bipartisan 2021 infrastructure bill is now funding roads, broadband and other projects nationwide. The government is paying for additional health benefits for veterans exposed to toxic burn pits.

Tax incentives in a bipartisan law meant to encourage semiconductor production and a party-line law intended to accelerate the transition from fossil fuels to lower-emission energy sources have spurred hundreds of billions of dollars in announcements or spending on new factory construction.

“It was a large dose of fiscal stimulus over the last year,” said Jason Furman, a Harvard economist who chaired the White House Council of Economic Advisers under President Barack Obama. “To get people lower mortgage rates,” he added, “to give businesses the ability to expand and invest and grow, we need to be bringing the deficit down.”

Data from other economists, like the creators of the Hutchins Center Fiscal Impact Measure at Brookings, suggest that the increase in spending and tax breaks last year did not outweigh the drag on the economy from expiring Covid relief. In other words, they effectively show that the end of stimulus aid that propped up consumer demand in the early stages of the pandemic offset any increased demand from new spending and tax breaks.

Economists at the investment bank UBS wrote last week that after adding to growth last year, including by fueling factory construction, federal tax and spending policy was likely to “flip” to dragging on growth this year. Economists at Bank of America Securities made a similar case last week after the Commerce Department reported that economic growth slowed in the first months of this year.

Administration officials said there were simpler — and superior — explanations for why price growth remained above the Fed’s target than the deficit. Housing inflation has not moderated as quickly as many economists expected, though White House models predict it will soon. Price growth in auto insurance, financial services and medical services are effectively one-offs that are keeping inflation elevated now, the officials said, but will not continue to push prices higher in the months to come.

“It’s not really a fiscal story,” Mr. Bernstein said.

Jim Tankersley writes about economic policy at the White House and how it affects the country and the world. He has covered the topic for more than a dozen years in Washington, with a focus on the middle class. More about Jim Tankersley

Term Paper on Inflation | Money | Economics

Here is a compilation of term papers on ‘Inflation’ for class 9, 10, 11 and 12. Find paragraphs, long and short term papers on ‘Inflation’ especially written for school and college students.

Term Paper on Inflation

Term Paper Contents:

• Term Paper on the Measures to Restrain Inflation

Term Paper # 1. Meaning of Inflation :

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It is big fault of money that its value doesn’t remain constant. There are changes in its value from time to time. The cause of this change is the change in the prices of goods and services from time to time. There is an inversely proportional relationship between the value of money and price level and trade cycle is born due to changes in the price level. The situation of recession and boom comes in the economy due to cycle of trade. The circumstances appearing due to changes in the value of money are called inflation and deflation.

The literal meaning of the term inflation is ‘spread’ or ‘expansion’ but in reality it is called monetary inflation. Its cause is that it is always a monetary event. In the common language the situation when the price level of goods and services increases and the value of money decrease it is referred to as inflation. But there has been much controversy among economists regarding the definition of inflation. Different economists have defined it differently.

For the sake of convenience of study, these definitions can be classified as follows:

(A) Definitions Based on Quantity of Money:

(1) According to Crowther, “Inflation is a state in which the value of money is falling i.e. price is rising.”

Prof. Crowther’s this definition is certainly an easy definition but it can’t be held satisfactory. According to this definition, every increase in the price level of goods and services should be considered inflation, while it is not so in reality. Every increase in the price level can’t be called inflation. For example, when the period of depression in the economy ends, there is gradual rise in the prices, it is seen in the interest of economy. In this situation, there is a rise in the price level of goods but it can’t be called inflation. So Crowther’s definition can’t be considered to be a complete definition.

(2) According to Prof. Kemmerer, “Inflation is too much currency in relation to the physical volume of business being done.”

According to this definition, when the demand of money increases with respect to the quantities of good and services, it is called inflation. This definition can be called satisfactory to some extent because it gets clear that inflation is born when the amount of money is more that trade requirements.

(3) According to Hawtrey, “The state in which there is over-issue of currency is called inflation.”

This definition is just a circumlocution of words. It doesn’t get clear in this definition what is meant by over issue of currency.

(4) According to Pigou, “Inflation is taking place when money income is expanding relatively to the output of work by production to income earning activities.”

Prof. Pigou’s definition is more satisfactory. He has clarified that the situation of inflation rises when people’s monetary income increases more as compared to the production of goods and services. People’s monetary income increases more as compared to the production of goods and services. People’s monetary income increases due to increase in the supply of money.

Consequently, there is an increase in the demands of goods and services which leads to an increase in the amount of production. Again, a time comes when a balance is established between monetary income and production. If the monetary income gets increasing beyond this point, there is no more increase in the production. This leads to rise in the prices of goods and services and it is the situation of inflation.

(5) According to Goldenwiser, “Inflation occurs when the volume of money actively bidding for goods and services increases faster than the available supply of goods.”

This definition resembles that of Prof. Kemmerer. So it is also not satisfactory.

After the study of all the above definitions we can say that Prof. Pigou’s definition is clear, proper and the best. Actually the inflation doesn’t refer to the situation of increased prices but the sequence of rising prices.

(B) Definitions Based on Demand and Surplus:

Prof. Keynes has associated inflation with the employment condition making demand sur­plus its basis. According to Prof. Keynes, “If there is expansion in the amount of money before reaching full employment, one part of it will expand employ­ment and the other part will in­crease prices by increasing cost of production. Keynes has referred the situation before full employment as semi-inflation.”

If the amount of money increases beyond the point of full employment there will be no increase in employment because other sources of employment have already been used. So there will be increase only in the prices. According to Prof. Keynes, this will be the situation of full inflation. This can be clarified with the help of the back diagram.

In the back diagram X-axis represents amount of money and Y-axis shows employment and prices. P is the point of full employment. It is clear from the diagram that employment and prices keep rising before point P. So, this will be the condition of semi-inflation and after this situation of full inflation will start. Thus, inflation is a movable process which can be felt only in the long duration so every rise in the price level can’t be called inflation. Only the gradual and stead rise in the price level is considered the indicators of inflation.

Term Paper # 2. Types of Inflation:

There are many forms of inflation.

The following are the prominent ones:

(1) Commodity Inflation:

It refers to general type of inflation. According to Prof. Keynes, the prices of commodities rise in a general way in this kind of inflation.

(2) Currency Inflation:

When a surplus amount of paper money is issued by the central bank of the country to meet the requirements of the government and it leads to the rise in prices of goods and services, it is called currency inflation or Deficit-Induced Inflation.

(3) Credit Inflation:

Sometimes the government keeps the amount of money stable and encourages credit. The expansion of credit is done by the banks of the country. When the prices of commodities increase due to expansion of credit, it is called credit Inflation.

(4) Profit Inflation:

Sometimes the cost of production decreases for many reasons due to which there is a tendency of decline in prices. But the government takes artificial measures to stop this decline in prices. As a result, the production gets additional profit to be profit inflation. This does not cause any change in the prices of goods. Prof. Keynes has said this stage profit inflation. The prices of commodities do not change in this inflation.

(5) Wage-Induced Inflation:

When there is no rise in the production but the producer is compelled to raise wages under the pressure of trade unions, it leads to rise in cost of production. It is called Wage-Induced Inflation.

(6) Production Inflation:

When there is no increase in the supply of money, but there is a decline in production due to natural factors like flood, drought, monsoon failure etc. or artificial factors like strike, lockout etc. and there is a rise in the prices of goods, it is called production inflation.

(7) Deficit-Induced Inflation:

Sometimes, the governments in most democratic countries are incapable of raising funds to meet the increased expenses. In this situation, the government makes a deficit budget. If this deficit is not met even through new taxes, the government issues surplus notes. Consequently, there is a rise in prices which is called Deficit-Induced Inflation.

(8) Full and Partial Inflation:

According to Prof. Pigou, when there is an excess increase in the monetary income which crosses to the condition of full employment in the economy, there is rise in prices which is called full inflation. Similarly, before crossing full employment if the quantity of money expands then it is called partial inflation.

(9) Open and Suppressed Inflation:

When there is no check on the rising prices in the economy and it is given the freedom of rising independently, it is called Open Inflation. On the contrary, if the government is trying to control it, it is called suppressed or controlled inflation.

(10) Cost-Induced or Cost-Push Inflation:

The cost of production increases due to increase in the various sources of production. This leads to the rise of prices of commodities; such inflation is called Cost-Induced or Cost-Push Inflation.

(11) Inflation on the Basis of Speed:

On this basis, there are four forms of inflation:

(a) Creeping Inflation:

It is also called General Inflation. Such inflation is considered proper for the development of any economy. There is very simple increase in the quantity of money in Creeping Inflation. Generally, an annual increase up to 2 percent is called Creeping Inflation.

(b) Walking Inflation:

When the quantity of money in the economy crosses Creeping Inflation i.e.; the annual income in the money is more than 2 percent, it is called Walking Inflation. In this inflation, the increase in the prices can be up to 5 percent.

(c) Running Inflation:

If the Walking Inflation is not checked and it goes on increasing, it takes the form of Running Inflation. In this inflation, the prices of commodities can increase up to 10 percent. People with stable income face many hardships during this inflation.

(d) Galloping or Hyper Inflation:

There is an increase in prices beyond expectation. This increase in price is observed on the daily as well weekly level. Hyper Inflation has a quick adverse impact on the economy.

Germany and Australia faced such a situation after World War-I. That time there was frequent increase in prices on very quick intervals. The value of money currency had fallen so much that old currencies had to be substituted with new ones.

Clarification through Diagram:

The above diagram clears that OA is Creeping Inflation which has slow pace. If this situation is not controlled, the line of inflation will be converted into Walking Inflation represented by Line OB. OC is the line representing Running Inflation. Similarly OD represents Hyper Inflation. Creeping Inflation is supposed to be good in a developing economy, but it needs to be cared that it should not take the form of Walking or Running Inflation. Hyper Inflation cannot be good for any economy.

Term Paper # 3. Causes of Inflation:

The causes of inflation can be divided into two categories:

(A) Increase in Monetary Income, and

(B) Decline in Production.

(A) Increase in Monetary Income:

It is true that when the monetary income of people increases, there is an increase in the demand which leads to increase in prices.

Following are the main causes of increase in monetary income:

(i) Monetary Policy of the Government:

The monetary Policy of the Government determines the amount of paper money issued by Central Bank of the Country. Sometimes, the government commands the central bank to issue surplus paper money in special circumstances. In this initial phase, such a decision seems to be proper for balancing the economy, but if it is not checked, it can increase extraordinarily and take the form of inflation. Similarly, the adverse conditions of bank rate, credit policies, open market operations etc. are the causes of inflation.

(ii) Reduction in Public Debt:

When, the government reduced the amount of public loan taken from people of the country, or start repaying the loans taken from the people, the monetary strength of people increases. Consequently demands for goods and services increase. If the amount of production is not increased, there is an increase in the prices of goods and services.

(iii) Deficit Financing:

When the government is not able to meet its deficit budget through new taxes, it does so by issuing surplus notes. As a result, the amount of money increases in the economy which gives rise to the situation of inflation.

(iv) Credit Policy of Commercial Banks:

Credit Policy of Commercial Banks also gives rise to inflation. If these banks start providing cash to people at low rates, the monetary strength of people increases. Consequently, the purchasing power of people increases. If the quantity of production stays stable, there is an increase in prices.

(v) Increases in Demand for Expert Goods:

If there is an increase in demand for export of such goods which have a stable supply, there is less availability of these for the domestic consumers. It affects prices. Due to decline in supply of goods in the domestic market, there is an increase in prices.

(vi) Black Money:

Black Money refers to that income of any person on which tax has not been paid. Black money creates unnecessary demand for goods and prices increase.

(vii) Increase in Consumer Spending:

When consumer starts demanding more and more goods or they demand more amount of luxury goods, there is an increase in prices. Their demand increases further, if these are available on installments. As a result there is an increase in prices.

(viii) Increase in Disposable Income:

Demands for goods and services increase due to increase in Disposable Income. This leads to rise in prices.

(B) Reduction in Production:

It is also an important cause of inflation.

There can be decrease in production due to the following reasons:

(i) Natural Causes:

Excessive rains, drought, flood, earthquake etc. can lead to decline in production in the countries with agro based economies. If there is no increase in the amount of money and at the same time there is decline in production then it can encourage inflation.

(ii) Lack of Raw Materials:

With the increase in the demands of produced goods, there is also an increase in the demand of raw materials. If there is car city of raw materials in the country and it has to be imported from other countries at high price it is sure to affect production. In other words, with the reduction in raw materials, there will also be reduction in production and there will raise the situation of inflation.

(iii) Taxation Policy of the Government:

The prices of goods increase if a heavy excise duty is imposed on the production. This creates an environment for inflation.

(iv) Production Process:

There are changes in the techniques of production of goods from time to time. If the producer applies the old techniques of production, there will be less production and the cost of production will be high. The consumer will have to pay high price for goods. Thus, the old method of production creates the situation of inflation.

(v) Industrial Disputes:

There are clashes with workers and industrial­ists for the demand of salaries, allowances, perquisites etc. This cre­ates the situations like strikes, lockouts etc. Trade Unions become dominant over the management. All these cause decline in production. But due to the pre-existing situations of demands, the prices go up and inflation is increased.

(vi) Increase in Demand:

When there is increase in demand of goods as compared to the production, there rises a situation of inflation. This increase in demand rises due to population growth, increase in export, period of war etc.

(vii) Black Marketing:

Sometimes, people create an artificial scarcity of necessary goods in the market by stocking them. They start selling goods in black markets at high prices for earning more profits. This situation gives rise to inflation.

Term Paper # 4. Effects of Inflation:

Inflation has different effects on different classes of people. Some people are profited from it while some other are harmed. It is true that the prices of goods and services increase during the inflation. But it does not increase uniformly. People from different social classes demand different materials of necessities. So, inflation does not have equal effect on all classes. Besides some people have stable income. So, inflation does not affect all classes equally.

The effect of inflation on different classes can be classified in the following points:

(A) Economic Effects:

(1) Producer’s Class:

Prices of goods increase during the inflation but production cost does not increase. Their reasons in that raw material are previously purchased and production can’t be increased very much in the short period. There is an increase in the price of finished goods maintained in the stock. This gives the producers extra profit. Thus, inflation is beneficial for producers’ class. They also start expanding their activities, being encouraged by surplus profit.

(2) Consumer’s Class:

Generally, consumers are from two groups—those with definite income and those with indefinite income. Those with definite income have to face more hardship as they face difficulties with their budget due to increase in the prices of goods of their consumption. Consequently, they have to reduce their consumption. Similarly, people with uncertain income also face problems due to inflation. However their income increases during the inflation, but it does not increase in the ratio of increase in prices.

(3) Wage Earners:

Sometimes wage earners get benefit and sometimes face loss due to inflation. They get more opportunities of employment due to expansion of trade and industries during the inflation and they don’t face unemployment. At the same time if trade unions are strong, they can get wages adjusted according to inflation.

With this view point, inflation is beneficial for labourers. On the other hand, it is also true that they have to face difficulties when wages are not increasing in the ratio of rise in the prices. The producers also exploit them if the trade unions are weak.

(4) Debtors and Creditors:

The debtors are benefited while the creditors are harmed during the inflation. The reason is that the purchasing power of money decreases during the inflation. However, the creditors get their money back but its purchasing power falls as compared to its purchasing power when the amount was lent. Thus, the creditors face a loss. If the creditors face a loss, the debtors are certainly benefited.

(5) Import and Export:

There is much increase in the prices of commodities during the inflation. It is not necessary that the situation of inflation exists in all the country at the same time. Thus, in a particular country the export reduces and import increases due to increase in prices of commodities. This weakness the balance of international trade and affects the economy badly.

(6) Investors:

Those investors who invest in the sector with stable income such as debentures, bonds etc. they face a loss even after getting a certain income because the purchasing power of their income reduces during inflation. But those investors who have invested in the equity share capital of companies get more profit because there is an increase in the profit of companies and so shareholders get a higher dividend.

(7) Government:

The expenditure of the government increases during the inflation because the employees have to be paid a raised salary. Besides, there is also an increase in the expenses on infrastructure and development. Thus, the government faces a loss due to inflation, for the fulfillment of which the government increases the load of taxes to people.

(8) Assessed:

Inflation is profitable for assesse. The reason is that the purchasing power of the amount paid by them is less.

(B) Social, Political and Other Effects:

(1) Increase in Economic Disparity:

The rich class gets richer and the poor classes are compelled to pay the raised prices. The maximum part of profit and income during the inflation goes to rich class. This creates economic disparity in the society.

(2) Increase in Employment:

There is expansion of trade and industries during the inflation. New commercial enterprises are also established. Thus, new opportunities of employment are available and there is reduction in the unemployment.

(3) Moral Downfall:

The profit of the business class, increase due to inflation. Being influenced by the glory of profit, the people of business class indulge in creating artificial scarcity, adulteration, black marketing and other immoral activities.

(4) Encouragement to Bravery and Speculation:

Everybody wants to get more and more income during the inflation. As a result, bravery in offices increases. Similarly, the activity of speculation is also encouraged due to inflation.

(5) Banking Development:

The income of people increases very much during the inflation. As a result, there is an increase in bank deposits. Banks grant credit with the help of these deposits. Thus, inflation is profitable with the view of banking development.

(6) Political Effects:

People’s faith in government weakens during the inflation. The opposition parties try to pressurise the government inside and outside of the parliament. Sometimes the inflation may even cause change in government.

(7) Hoarding:

The producers and traders create an artificial scarcity of goods in the market by making stocks with the view of getting profit of increased prices. As result, there is more load of inflation on consumers.

After studying the above mentioned effects of inflation it feels that it is beneficial in certain circumstances. However, the first and second phases of inflation are certainly helpful in the development of economy but after this it disturbs the economy. People lose their faith in currency.

Considering the demerits of inflation, Prof. C. N. Vakil has said, “Inflation may be compared to a robber. Both deprive the victim of some possession with the difference that robber is visible, inflation is invisible, the robber’s victim may be one or a few at a time, the victim of inflation is the whole nation, the robber may be dragged to court of law but inflation is legal.”

If we analyse Prof. C. N. Vakil’s statements seriously, it seems plausible. In fact, inflation is an economic evil. Prof. Robertson’s statement is relevant here. According to him, money is boon for humans, but if it is not kept under control; it can be cause of trouble and perplexity.

Term Paper # 5. Measures to Restrain Inflation:

Due to evil effects of inflation there is a need of taking measures to check it. It is essential to check inflation to regulate the economy.

Generally following three steps are taken to control the inflation:

(1) Monetary Measures:

Those steps are included in the monetary measures which are adopted by the central bank of the country to regulate money and credit.

Following are the steps taken by the central bank to control inflation:

(i) To Control Over the Amount of Money:

Controlling the amount of money is good step to check the inflation. So, the central bank takes the securities while issuing notes. The central bank must be extremely careful while issuing new currencies so that it should encourage the inflation.

(ii) Credit Control:

The inflation can be controlled by the central bank by credit regulation also. For this the central bank should increase the bank rate and sell the government securities in the open market. Besides, it should also have a proper control on the credit creation by the commercial banks.

(iii) Replacement of Old Money to New Money:

When the inflation achieves a critical form, the old currency should be replaced with a new one.

(2) Fiscal Measures:

Following steps is included under it:

(i) Increase in Taxes:

The government should increase the rate of old taxes on people to check the inflation and it should reduce the purchasing power of people by imposing new direct and indirect taxes.

(ii) Reduction in Public Expenditure:

The government should regulate the public expenditure during the inflation. Particularly, non-productive expenses must be checked so that the rises in prices can be controlled.

(iii) Increase in Public Debt:

To control the inflation, it is essential that the government should take more and more loans from the people to invest it in productive activities. This will reduce the purchasing power of people on one hand and increase the amount of production on the other.

(iv) Encouragement to Savings:

The Government should discourage consumption by imposing taxes on consumer goods and it should encourage savings by bringing new schemes related to savings. But the essential goods of consumption should not be imposed with heavy taxes.

(v) Balanced Budget:

The government should avoid a deficit budget because extra notes will have to be issued to meet this deficit and it will promote the inflation. So, as far as possible, the government should keep a balanced budget.

(vi) Increase in Production:

Increasing production is also an important measure to check the inflation. So, the Government should encourage such industries which can produce consumer goods instantly.

(3) Other Measures:

Some other measures of controlling the inflation are as follows:

(i) Price Control and Rationing:

When there is very much increase in the prices of inflation, the government does the rationing of very essential commodities. It means the government makes the arrangement of selling these goods at cheap rates through a separate distribution system which is availed with the help of ration cards.

(ii) Subsidy:

The government gives economic aids to the producers to increase the production and reduce the cost of production of consumer goods. Thus, a balance in the economy can be maintained by checking the inflation.

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• Other Measures Foretold the Increase in March
• Core Inflation is Heating Up
• Fed Can't Get Confident with Numbers Like These
• Economic News

The Federal Reserve's Preferred Measure Of Inflation Heated Up In March

Data Reinforce Notion That Interest Rates Likely Won't Be Cut Any Time Soon

Li Jianguo / Xinhua via Getty Images

• Inflation as measured by Personal Consumption Expenditures headed in the wrong direction in March, heating up to a 2.7% annual rate from 2.5% in February.
• Higher inflation could hurt household finances in another way, by keeping interest rates high on all kinds of loans as the Fed holds interest rates higher for longer to fight inflation.
• The hot PCE report echoes what a different inflation measure, the Consumer Price Index, showed earlier this month.

A government report confirmed what people have already seen on their trips to the gas station and grocery store: inflation is staying too high for comfort. The cost of living, as measured by the Personal Consumption Expenditures (PCE) index, rose 2.7% over the last year in March, up from a 2.5% annual increase in February, the Bureau of Economic Analysis said Friday. The uptick, driven largely by increases in food and energy prices, was slightly higher than the expectations of forecasters, according to a survey of economists by Dow Jones Newswires and the Wall Street Journal.  

Other Measures Foretold the Increase

The Consumer Price Index already showed overheated inflation earlier this month when the Bureau of Labor Statistics released it. But PCE inflation is more significant for the direction of interest rates because it’s closely watched by officials at the Federal Reserve who set the nation’s monetary policy.

"It's going the wrong way," said Dan North, senior economist at Allianz Trade.

The two major inflation measures are both based on surveys of prices of the things people buy but are calculated differently, with PCE inflation putting less emphasis on housing, for example. Hot inflation as shown by the PCE is bad news for anyone waiting for lower interest rates on things like mortgages and credit cards. 

After Thursday's report on Gross Domestic Product (GDP) showed higher than expected inflation for the entire quarter, some economic watchers worried it belied a drastic increase in inflation . January's annual rate was revised, up from 2.4% to 2.5%. That could come as a relief to some market watchers who were worried the quarterly figure would drastically change the outcome for March.

Inflation's Core Is Heating Up

The Fed has been holding the influential fed funds rate at its highest since 2001 to combat inflation, putting upward pressure on interest rates on all kinds of loans. Fed officials have said they’re waiting for data showing inflation is firmly on the path to a 2% annual rate before they’ll cut the fed funds rate. 

The details of Friday's report held another bad sign for interest rates: "core" inflation, which excludes volatile prices for gas and energy, rose 2.8% over the year, the same as in March, and higher than the drop to 2.7% that the median forecast had anticipated. Economists watch core inflation because it is a better indicator of long-term inflation pressures since it leaves out prices that tend to swing up and down for temporary reasons like the weather.

The report also showed consumers have plenty of firepower to keep spending, and are using it. Personal income rose 0.5% in March from February, up from a 0.3% monthly increase in February, supported by salaries in a labor market that still favors workers . Spending rose even faster at a 0.8% clip, the same as in February.

That's along the same lines as Thursday's report on the Gross Domestic Product, which showed consumer spending was still powering the economy ahead , despite some factors, including rising imports, making economic growth seem slower on paper . "You've got to go under the hood," North said of the GDP report. "The hood is rusty, but underneath, it's really not so bad."

That too has implications for rate cuts, since consumer spending is the main engine of the country's economy, and if it's going strong , the Fed has less reason to cut interest rates to stimulate growth.

Fed Can't Get Confident with Numbers Like These

The streak of bad inflation reports this year combined with evidence that growth is still surging ahead is likely to discourage the Federal Reserve Chair Jerome Powell and other officials from cutting interest rates through at least November, North said. "If you're Jay Powell, and you're looking at the growth side of the economy, you're saying, 'Well, it's doing fine—look at personal consumption, look at the labor market. It doesn't need any stimulus, so I don't need to cut rates from that perspective,'" he said. "And if I look at the inflation side: To look at that core number, we're at 2.8%. That's not 2%. ...We're a long, long way from that as well. So this just keeps Jay Powell out for several months."

Bureau of Economic Analysis. " Personal Consumption Expenditures ."

MarketWatch. " U.S. Economic Calendar ."

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College Term Paper

🖋 best way to write a great college term paper, term paper on inflation.

Inflation Term Paper:

Inflation is the unregulated increase of prices caused by the instability of a national currency. That means one can buy little amount of goods for big sum of money. moreover, the process of inflation is continuous, so one will have to pay more and more money for the same products. Inflation can occur when the economical situation of the country is weak, when the country produces very few resources and goods which can compete with the goods of other countries.

No wonder that the developing countries often experience the problem of inflation, because their economics is far from the one of the highly-developed states. The only way out and the most common one is to change the country’s currency. The stability of the nation’s currency depends on the gold standard. The gold standard is the most valid system of currency. The system is very simple: the more gold a country possesses, the more stable currency it will have and inflation will never be a threat to it. The connection between inflation and unemployment is very high. The higher rate of inflation is, the bigger percent of people is unemployed.

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The topic of inflation (especially in such countries as India or Bangladesh for example) is extremely important for every person in the world, no matter whether one is an economist or not, everybody will feel the impact of inflation on his financial condition.

Nevertheless, very few people understand the factors which influence the cause and effect of inflation, so young people who study economics and business at colleges and universities are asked to write a term paper on inflation and its impact. A good paper should be interesting, informative and include reliable evidence which support your point of view. Generally, such topics presuppose creativity and new ideas of students about the ways to cope with inflation or reduce its negative impact.

When a student has to complete a term paper on the topic, he usually feels disappointed, because the problem is really complicated and needs profound research and much time to understand it. One has to read carefully in order to realize the nature and the reasons of inflation. Good books, articles in periodicals, scientific publications, encyclopedias will be useful for every student to understand the topic well. Free example term papers on inflation and unemployment will be of a good help when one has problems with proper paper writing.

When one has found data and analyzed it, the job is still not finished. One has to compose a logical paper and to organize the analyzed information in a good way. In this case free example term papers on inflation and deflation will be quite helpful.

Related Term Papers:

• Term Paper on Unemployment in Pakistan
• Term Paper on Economics
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Today's Paper | April 30, 2024

Sbp holds rate at 22pc for seventh time.

• Says upcoming budgetary measures may have implications for near-term inflation outlook • Industry says expensive borrowing has caused significant losses to economy

KARACHI: The State Bank of Pakistan (SBP) kept its key interest rate unchanged at 22 per cent for the seventh straight policy meeting on Monday as it found no improvement in the economic situation while the fear of inflation continues to haunt policymakers.

“The level of inflation is still high. The upcoming budgetary measures may have implications for the near-term inflation outlook,” the central bank said in its Monetary Policy Statement.

Most analysts and financial experts expected a cut in the interest rate, particularly due to poor economic growth. This decision comes in light of flat private sector borrowing, which has been significantly impacted by the high borrowing costs.

The Monetary Policy Committee (MPC) stressed the continuation of the current monetary policy stance to bring inflation down to the target range of 5pc to 7pc by September 2025.

The committee said the inflation outlook is susceptible to risks emanating from recent global oil price volatility, bottoming out of other commodity prices, the potential inflationary impact of the resolution of circular debt in the energy sector, and tax rate-driven fiscal consolidation going forward.

“Cognisant of these risks, the committee assessed that it is prudent to continue with the current monetary policy stance at this stage, with significant positive real interest rates,” it said. The committee views inflation to continue to remain on a downward trajectory, it added.

The MPC observed economic recovery during the first half of fiscal 2024, strong rebound in agriculture, sizeable surplus in current account in March, and inflation expectations of consumers inching up in April.

The SBP projected the 2023-24 GDP growth in the range of 2pc to 3pc, with 6.8pc agriculture growth (in the first half of the fiscal year). Large-scale manufacturing (LSM) showed no improvement to drive the economy this year. The LSM declined by 0.5 per cent during the eight months from July to February.

However, the MPC expects value-addition from the manufacturing and services sectors to recover in the coming months.

External sector

The current account has performed better than expected, recording a sizeable surplus of $619 million in March, mainly due to the Eid-related surge in workers’ remittances.

The current account deficit during July-March FY24 narrowed by 87.5pc to $0.5 billion compared to the same period last year. Exports continue to exhibit steady growth — led by rice — while imports have decreased due to better domestic agriculture output and moderate economic activity.

This reduction in the current account deficit — amid weak financial inflows — allowed the SBP to make sizeable debt repayments, including that of a $1bn Eurobond, while sustaining the SBP’s foreign exchange reserves around $8bn.

Fiscal sector

In line with fiscal consolidation efforts, the primary surplus increased to 1.8pc of GDP during July-January from 1.1pc in the same period last year. This improvement is mainly led by the continuous increases in revenue collection and some restraints on non-interest expenditures.

The sizeable increase in both tax and non-tax revenues largely reflects the impact of taxation measures and ongoing economic recovery. The interest payments, however, have increased due to high debt levels and the government’s reliance on expensive domestic borrowing.

“As a result, the overall deficit increased to 2.6pc of GDP during July-January FY24 from 2.3pc in the same period last year,” the SBP said.

Industry’s reaction

Iftikhar Ahmed Sheikh, president of the Karachi Chamber of Commerce and Industry, said the industry was expecting a reduction of 150 to 200 basis points in the interest rate due to declining inflation and support for economic growth from the IMF and World Bank.

He said the expensive borrowing rate has caused significant losses to the economy, particularly the cost of doing business, which has grossly suppressed the manufacturing sector.

Johar Ali Qandhari, president of the Korangi Association of Trade and Industry, also expressed serious concern over the State Bank’s decision to continue with the 22pc interest rate.

Fearing that such a move could be a disaster for the industry, Mr Qandhari asserted that the high interest rate posed a formidable barrier to achieving economic objectives, exacerbating challenges faced by businesses.

Published in Dawn, April 30th, 2024

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دبئی کنسرٹ میں ارجیت سنگھ ماہرہ خان کو پہچاننے سے قاصر، معافی مانگ لی

24 سال تک اپنے ہی گھر کے تہ خانے میں قید رہنے والی لڑکی کی لرزہ خیز داستان

پاکستان بچوں کو محفوظ بچپن فراہم کرنے میں ناکام کیوں ہے؟

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