Inflation :: Economics Economy Price Inflation

Inflation defines as an increase in the legal injury you pay or a decline in the purchasing power of money. In otherwise words, price inflation is when prices get higher or it takes more money to buy the same item. Interest range are increased to moderate essential and inflation and they are reduced to stimulate demand. Monetary policy aims to influence the overall level of monetary demand in the economy so that it grows loosely in line with the economys ability to produce goods and services. This stops fruit rising too quickly or slowly. If rates are set too low, this whitethorn encourage the build-up of inflationary pressure if they are set too high, demand will be lower than necessary to control inflation. Changes in demand and output then impact on the labor market - employment levels and wage costs - which in turn influence producer and consumer prices. When the Fed increases the discount rate, it does not hasten an immediate impact on the stock market. Changes in the off icial Bank rate then affect the whole range of interest rates set by commercial banks, building societies and other financial institutions for their own savers and borrowers. It will influence interest rates charged for overdrafts and mortgages, as well as savings accounts. A change in the official Bank rate will also tend to affect the price of financial assets such as bonds and shares, and the exchange rate. These changes in financial markets affect consumer and business demand and in turn output. Changes in the official Bank rate take time to have their full impact on the economy and inflation. Some influences, such as those on the exchange rate, work very quickly. In January of 2003, Oil price banish up 76.82% from the previous January. These have recently been some speculation on the correlation between a sharp rise in Oil price and a sharp fall in Stock prices. The way the theory goes is that a sharp increase in oil prices on the magnitude of 50% to 100% annual increase has historically resulted in a sharp decline in the stock market price.