Inflation :: Economics Economy Price Inflation

Inflation defines as an increase in the hurt you pay or a decline in the purchasing power of money. In other words, price inflation is when prices get higher or it takes more money to buy the same item. Interest rates are increased to check into acquire 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 broadly in line with the economys ability to produce goods and services. This stops output rising likewise quickly or slowly. If rates are set too low, this may 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 tax write-off rate, it does not have an immediate impact on the stock market. Changes in the official Bank r ate then affect the whole range of evoke 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 sanitary as savings accounts. A change in the official Bank rate will also tend to affect the price of financial assets such(prenominal) 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 condemnation 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, petroleum price spiked 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.