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this is a draft of the book that i'm writing
INFLATION DEBATE
THE MAIN TOPIC TO DISCUSS ABOUT?
BACKGROUND
HOW INFLATION CAN BE REDUCED TO THE DEVELOPING COUNTRIES
THE TYPES OF INFLATIONS
HOW INFLATION HUNDLE THE DELOPMENT OF ANY COUNTRY
THE CHALLENGES THAT THE GOVERNMENT OF RWANDA FACED ABOUT INFLATIION
THE COUNTRY WITH HIGH LEVELS OF INFLATION IN AFRICA
INFLATION IN EVERY COUNTRY IN AFICA AMERICA AND ASIA
THE RESEARCH THAT HAVE DONE ABOUT HOW INFLATION CAN BE REDUCED TO THE DEVELOPING COUNTIES
2007-008 INFLAION ISSUES
2007-2008 INFLATION SYTEMS
THE SUMMARY NOTES
REFERENCES
GOVERNEMENT AND FOREING AID
REMERIECEMENT
CURVE AND DIAGRAMMS OF INFLATION AND INFLATION CONCEPTS
HOW INFLATION SHOULD BE CALCULATED
BY USING COST OF LIVING CALCULATOR TO COMPARE THE COST IN TWO CITIES.
Over on Real Money, Barry Ritholtz argues that the U.S. government is probably underestimating inflation because it is focusing on the wrong type of inflation. I would agree with that, having identified no less than five different types of inflation: commodity inflation, wage inflation, monetary inflation, fiscal inflation, and foreign exchange inflation. Before discussing "inflation," it helps to define, "What is inflation" and identify which form of inflation is being talked about. Failure to do so may have caused some of the confusion that often surrounds this topic. Consumer price index (CPI) which measure the price of a selection of goods and services purchased by a "typical consumer." (COLI) are indices similar to the CPI which are often used to adjust fixed incomes and contractual incomes to maintain the real value of those incomes. Producer price indices (PPIs) which measures average changes in prices received by domestic producers for their output. This differs from the CPI in that price subsidization, profits, and taxes may cause the amount received by the producer to differ from what the consumer paid. There is also typically a delay between an increase in the PPI and any eventual increase in the CPI. Producer price index measures the pressure being put on producers by the costs of their raw materials. This could be "passed on" to consumers, or it could be absorbed by profits, or offset by increasing productivity. In India and the United States an earlier version of the PPI was called the Wholesale Price Index. Commodity price indices, which measure the price of a selection of commodities. In the present commodity price indices are weighted by the relative importance of the components to the "all in" cost of an employee.
THE MAIN TOPIC TO DISICUS ABOUT, I WRITE THIS BOOK TO MAKE MORE UNDERSTABLE OF HOW INFLATION SHOULD BE REDUCED IN DEVELOPING COUNTRIES SPECIFICALLY IN AFRICA
THIS IS A SHORT BOOK THAT I HAVE WRITEN FOR HELPING MY COUNTRY AND OTHE COUNTRIES WHICH ARE POORELY ADVANCED TO GET MORE INFORMATION ABOUT HOW THEY CAN HUNDLE THE GAP OF INFALTION AND THE AREA OF CLIMATE WHICH IS PURELY FACING INFLATION ISSUES.
MY MAIN AIM THAT PROMOTED ME TO PUT MORE ENERGY TO WRITE THIS BOOK ,IS THAT I MEAN MY SELF THAT FOR THE TIME THE YOUNG GENERATION HAVE SUFFICIENT INFORMATION ABOUT INFLATION THEY WILL GET MORE ASSISTANCE OF HOW ECONOMIC HANDICAPE SHOULD BE MINIMAZED.
I HAVE BEEN SEARCHING EVERY WHERE TO FIND THE RESULT OF CLONICAL INFLATION IN DE VELOPING COUNTRIES BUT IT V ERY TOUGH TO FIND GOOD SOLUTION MOST OF AFRICAN COUNTIRES FACING INFLATION FOR THESES FOUR DECADE BECAUSE FOR THEM ECONOMIC IMBALANCES AND INFLATION IS CLONICAL ACCEPTED FOR EXA MPLE IN 2008 ZIMBABWE IS REALY ATTACKED BY LONG INFLATION TO THESE YEARS
INFLATION DEFINITON
So between 1983 and 2000 the definition appears to have shifted from the cause to the result. Also note that the cause could be either an increase in money supply or a decrease in available goods and services.
Original definition
In classical political economy. Inflation meant increasing the money supply, while deflation meant decreasing it (see monetary inflation). Economists from some schools of economic thought, including almost all Austrian economists, still retain this usage. Mainstream economists distinguish the effect from the cause, that is, inflation is a measurement of the effect rather than the cause. While most schools of economics agree that changes in the money supply relative to the level of economic activity, the link between the quantity of money is not direct: for example, changes in the level of prices are affected by the velocity of money and inflation can occur with a substantial lag between the increase in the quantity of money and the increase in the general price level.
Originally, inflation was seen as the debasement of the currency, meaning that e.g. gold coins were collected by the government (usually the king or the ruler of the region), molten down, mixed with other metals (often lead), and reissued at the same nominal value. By mixing the gold coins with other metals, the amount of coins increased, thus increasing the total money supply. However, the value of each unit of currency, i.e. gold coin, was decreased as it no longer was pure gold. This lead to an increase in nominal prices, as a consumer had to give more mixed coins than pure gold coins in exchange for the same goods and services.
Today, increasing or decreasing the money supply is mainly carried out by central banks and the effects of increasing the money supply are further increased by credit expansion due to the fractional-reserve banking system employed in most economic and financial systems in the world. In contemporary economic terminology, these would usually be referred to as expansionary and contractionary monetary policies
The modern definition of inflation used in mainstream economics differs from the original definition to the extent that Austrians maintain that inflation is an increase of the money supply, which in turn leads to a higher nominal price level, as the real value of each monetary unit is eroded and thus buys fewer goods and services. Mainstream economists maintain inflation is a measurement of the general level of prices. Thus, the difference is that Austrian economists claim that inflation is the very action of producing more units of money, whereas mainstream economists distinguish between the measurement of the level of prices (the effect) and the increase in the money supply (one of the causes).
Related definitions
While 'inflation' usually refers to a rise in some broad price index like the consumer price index that indicates the overall level of prices, it is also used to refer to a rise in the prices of some specific set of goods or services, as in "commodities inflation, "food inflation", or "house price inflation" or core inflation.
Related economic concepts include: deflation, a fall in the general price level; disinflation a decrease in the rate of inflation; hyperinflation an out-of-control inflationary spiral; stagflation a combination of inflation and slow economic growth and rising unemployment; and reflection which is an attempt to raise the general level of prices to counteract deflationary pressures.
"An increase in the amount of currency in circulation, resulting in a relatively sharp and sudden fall in its value and rise in prices: it may be caused by an increase in the volume of paper money issued or of gold mined, or a relative increase in expenditures as when the supply of goods fails to meet the demand.
This definition includes some of the basic economics of inflation and would seem to indicate that inflation is not defined as the increase in prices but as the increase in the supply of money that causes the increase in prices i.e. inflation is a cause rather than an effect.
For Albert views inflation it may be defined as the persistent increases in money terms while the money lost the value on the sufficient level for the typical example in Zimbabwe there are highly currency lost the values.
Inflation:
A persistent increase in the level of consumer prices or a persistent decline in the purchasing power of money, caused by an increase in available currency and credit beyond the proportion of available goods and services.
In this definition, inflation would appear to be the consequence or result (rising prices) rather than the cause.
Inflation
1: a general and progressive increase in prices; "in inflation everything gets more valuable except money" [syn: rising prices] [ant: deflation, disinflation]The overall general upward price movement of goods and services in an economy, usually as measured by the Consumer Price Index and the Producer Price Index; opposite of deflation.
From this page we can see that even Dictionaries don't agree on the definition of inflation and economists continue to argue over its primary cause. Although it is generally agreed that economic inflation may be caused by either an increase in the money supply or a decrease in the quantity of goods.
Therefore it should be equally obvious that falling prices will result from a decrease in the money supply or a rapid increase in the quantity of available goods. The 1990's saw a virtual explosion of inexpensive goods produced in China and other former Communist Countries. So it is no wonder that in the United States saw falling prices rather than the effects of inflating the money supply in our economy.
However, more recently our money supply has exploded and inflation has been creeping up.
The types of inflation
There is different ways to differentiate the type of inflation
Inflation is associated with rising price. It is a situation in which there is a sustained, inordinate (excessive), and general increase in prices. There is a continuous fall in the value of money as there is too much money chasing after too few goods.
The increase in prices must last for a reasonable period of time. If prices go up during this period and fall in the next, then it is mere price fluctuation. The increase in price must be excessive by that country's experience. Inflation is the rise in average price of all goods that we buy and not just of one item.
Inflation may be classified according to the rate of increase in prices. The 'rate of inflation' is the percentage increase in the Retail Price Index (RPI) over the period of one year.
There are different degrees of inflation. It includes mild inflation, strato-inflation and hyper-inflation.
Mild inflation is a slow rise in price level of no more than 5 percent per annum. It is associated with a low level of unemployment and is during the upswing phase of a trade cycle. Such creeping inflation has beneficial effects on an economy. It is a sign of a buoyant economy or an expanding economy, implying the generation of jobs, output and growth.
For strato-inflation, the inflation rate ranges from about 10 percent to several hundred per cent. Many developing countries particularly those in Latin America experienced this.
Hyper-inflation is a very rapidly accelerating inflation which is also knows as runaway inflation or galloping inflation. This usually leads to the breakdown of the country's monetary system as the existing currency may have to be withdrawn and a new one introduced. In 1923, the inflation rate in Germany averaged 322 percent per month with the highest inflation rate at 29 000 percent in October. Hyper-inflation usually occurs during or soon after a war when a government turns to the printing press to create money to pay its debts. It is usually short-lived and should not be regarded as typical of inflation.
The inflation that most American economists remember best (from the 1960s and later) is wage inflation, otherwise known as demand-pull inflation. Workers observe rising prices and demand compensation in the form of higher wages, which creates a vicious cycle of more inflation and more wage demands. This has not been happening until recently in the United States, due to the absence of labor unions, and to what Karl Marx called the "reserve army of the unemployed" in "offshore" markets. This appears to be the form of inflation that the Fed and other U.S. government authorities are focusing on, and it has indeed been benign up to now.
A less common, but more volatile form of inflation is commodity inflation, better known as cost-push inflation. We can see it today in commodity prices such as energy and metals. Energy and food price changes are excluded from "core" inflation because of their period-to-period volatility. But over time, oil price rises have averaged 6% a year, higher than other forms of inflation, and assuming that they don't cause inflation is really assuming away the problem. Other commodities such as timber rise at 3% a year "real" (above the rate of calculated inflation).
That's largely because such rises are (wrongly) excluded from the calculation. Another form of commodity inflation that is excluded from the official statistics has been the parabolic rise in housing prices. (The government instead uses a calculation of "owner equivalent rents," which are basically tied to the benign wage numbers.) Commodity inflation is the most obvious form of inflation today (after having been quiescent in the 1990s), as reflected in higher food, gasoline and gas bills, but is severely understated.
Monetary inflation was most famously seen in Weimar Germany during the 1920s, when the German government went crazy with the printing presses to the point where it took billions of marks to equal one dollar. This wiped out the savings of the middle class, most members of which were compensated with (worthless) "million mark" notes, and eventually led to the rise of Hitler. Nothing of this sort has happened in the western world since, but it is a worry when the United States has a chairman of the Federal Reserve who has talked (hopefully facetiously) of dropping money out of helicopters.
Fiscal inflation is due to excess government spending, for which the budget deficit is a reasonably good proxy. It originated in the "guns and butter" spending of President Lyndon Baines Johnson in the 1960s, and similar spending of today's President George W. Bush. We have war spending without a "war economy" e.g. rationing or wage and price controls, and if the 1960s are any guide, we will be paying the price later this decade and in the 2010s.
The last type of inflation, foreign exchange inflation, is particularly scary to me, someone who lived in Mexico before and during the peso crisis in 1994. This happens when the local currency (pesos in this case) falls dramatically against other world currencies, thereby sharply raising the price of imported goods, and hence the overall price level.
This is a real worry for the United States when the latest annual trade deficit is somewhere over $760 billion. I'm not looking for anything like the two-thirds fall of the Mexican peso in 1994-95 as a result, but even a 20% across the board drop of the U.S. dollar against the Euro, yen and yuan (the Chinese currency was unpegged from the dollar only in 2005) would be a severe shock stateside.
Other forms of inflation
There are many types of inflations one is demand pull inflation. Inflation caused by increase in aggregate demand not matched by aggregate supply of goods, resulting in rise of general price level, is called demand pull inflation. Demand pull inflation is to be more simple when the demand for goods and services in the country is more than their supply. The effective demand for goods increases due to many factors such as increase in the money supply, increase in the demand of goods by the government, increase in the income of various factors of production. In short the excessive increase in the money supply causes inflationary conditions. Demand full inflation is generally characterized by shortage of goods and shortage of workers.
The second is cost push inflation. Cost push inflation occurred when the increasing cost of production pushes up the general price level. Cost pull inflation occurs when the economy is below full employment with prices rising even though there is no shortage of goods. Cost push inflation is the result of increase in wage costs unaccompanied by corresponding increase in productivity, rise in import prices of goods, depreciation in the external value of the currency. Profit inflation is in fact categorized under cost push inflation.
OTHER POINT
Inflation is measured by calculating the inflation rate which means the percentage rate of change of a price index, such as the Consumer Price Index.
For example, in January 2007, the U.S. Consumer Price Index was 202.416, and in January 2008 it was 211.080. Therefore, using these numbers, we can calculate that the annual percentage rate of CPI inflation over the course of 2007 was
That is, the general level of prices for typical U.S. consumers rose by approximately four per cent in 2007.[
Price indices include the following.
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COST OF LIVING INDICES
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The GDP DEFLATOR is a measure of the price of all the goods and services included in GROSS DOMESTIC PRODUCT (GDP). The US Commerce Department publishes a deflator series for US GDP, defined as its nominal GDP measure divided by its real GDP measure.
Because food and oil prices change quickly due to changes in supply and demand conditions in the food and oil markets, it can be difficult to detect the long run trend in price levels when looking at those prices. Therefore most national statistical agencies also report a measure of 'core inflation', which removes the most volatile components (such as food and oil) from a wider price index like the CPI. Since core inflation is less affected by short run supply and demand conditions in specific markets, it helps CENTRAL BANKS better measure the inflationary impact of currency MONETARY POLICIES Regional inflation The Bureau of Labor Statistics breaks down CPI-U calculations down to different regions of the US. Historical inflation Before collecting consistent econometric data became standard for governments, and for the purpose of comparing absolute, rather than relative standards of living, various economists have calculated imputed inflation figures. Most inflation data before the early 20th century is imputed based on the known costs of goods, rather than compiled at the time. It is also used to adjust for the differences in real standard of living for the presence of technology. ASSET PRICE INFLATION An undue increase in the prices of real or financial assets, such as stocks (equity) and real estate can be called 'asset price inflation'. True Money Supply (TMS) Demand-pull inflation: : inflation caused by increases in aggregate demand due to increased private and government spending, etc. Demand inflation is constructive to a faster rate of economic growth since the excess demand and favorable market conditions will stimulate investment and expansion. COST –PUSH INFLATION also called "supply shock inflation," caused by drops in aggregate supply due to increased prices of inputs, for example. Take for instance a sudden decrease in the supply of oil, which would increase oil prices. Producers for whom oil is a part of their costs could then pass this on to consumers in the form of increased prices. BUILT –IN INFLATION: induced by adaptive expectations, often linked to the "price/wage spiral " because it involves workers trying to keep their wages up (gross wages have to increase above the CPI rate to net to CPI after-tax) with prices and then employers passing higher costs on to consumers as higher prices as part of a "vicious circle." Built-in inflation reflects events in the past, and so might be seen HANGOVER INFLATION World Bank has called the countries of East Asia for resolute actions on struggle against a rise in prices for the foodstuffs and fuel. Inflation is more significant problem for Southeast Asia, than credit crisis, is spoken on April, 1st in the semi-annual review of bank. Significant first line reserves, changes at macroeconomic level and potential of internal demand will allow region economy to go through easy enough the period of recession in the USA. World Bank: Inflation threatens East Asia development
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While there is no widely-accepted index of this type, some central bankers have suggested that it would be better to aim at stabilizing a wider general price level inflation measure that includes some asset prices, instead of stabilizing CPI or core inflation only. The reason is that by raising interest rates when stock prices or real estate prices rise, and lowering them when these asset prices fall, central banks might be more successful in avoiding bubbles and crashes in asset prices.
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Following the definition may measure the inflation by calculating the growth of the money supply, i.e. how many new units of money that are available for immediate use in exchange, that have been created over time.
Issues in measuring inflation
Measuring inflation requires finding objective ways of separating out changes in nominal prices from other influences related to real activity. In the simplest possible case, if the price of a 10 oz. can of corn changes from $0.90 to $1.00 over the course of a year, with no change in quality, then this price change represents inflation, according to the main stream definition. But we are usually more interested in knowing how the overall cost of living changes, and therefore instead of looking at the change in price of one good, we want to know how the price of a large "basket" of goods and services changes. This is the purpose of looking at a price index , which is a weighted average of many prices. The weights in the Consumer Price Index. For example, represent the fraction of spending that typical consumers spend on each type of goods (using data collected by surveying households).
Inflation measures are often modified over time, either for the relative weight of goods in the basket, or in the way in which goods from the present are compared with goods from the past. This includes hedonic adjustments and "reweighing" as well as using chained measures of inflation. These adjustments are necessary because the type of goods purchased by 'typical consumers' changes over time, and the quality of some types of goods may change, and new types of goods may be invented.
As with many economic numbers, inflation numbers are often seasonally adjusted in order to differentiate expected cyclical cost increases, versus changes in the economy. Inflation numbers are averaged or otherwise subjected to statistical techniques in order to remove statistical noise and volatility of individual prices. Finally, when looking at inflation, economic institutions sometimes only look at subsets or special indices. One common set is inflation excluding food and energy, which is often called " core inflation".
Holding true the definition do not alter the method of measuring inflation, but strives to keep track of the growth what according to their view is the "true" money supply.
I can add more points
The causes of inflation:
Causes of inflation
In the long run inflation is generally believed to be a monetary phenomenon while in the short and medium term it is influenced by the relative elasticity of wages, prices and interest rates. The question of whether the short-term effects last long enough to be important is the central topic of debate between monetarist and Keynesian schools. In monetarism prices and wages adjust quickly enough to make other factors merely marginal behavior on a general trend line. In the Keynesian view, prices and wages adjust at different rates, and these differences have enough effects on real output to be "long term" in the view of people in an economy. According to the ordinal school; inflation is a distinctive action taken by central bank, meaning the creation of new units of money. This newly created credit is then expanded due to the multiplying effect of the fractional-reserve banking system.
A great deal of economic literature concerns the question of what causes inflation and what effect it has. There are different schools of thought as to what causes inflation. Most can be divided into two broad areas: quality theories of inflation, and quantity theories of inflation. Many theories of inflation combine the two. The quality theory of inflation rests on the expectation of a seller accepting currency to be able to exchange that currency at a later time for goods that are desirable as a buyer. The quantity theory of inflation rests on the equation of the money supply, its velocity, and exchanges. Adam Smith and David Hume proposed a quantity theory of inflation for money, and a quality theory of inflation for production.
Keynesian economic theory proposes that money is transparent to real forces in the economy, and that visible inflation is the result of pressures in the economy expressing themselves in prices.
There are three major types of inflation, as part of what Robert J. Gordon calls the "triangle model
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A major demand-pull theory centers on the supply of money: inflation may be caused by an increase in the quantity of money in circulation relative to the ability of the economy to supply (its potential output ). This is most obvious when governments finance spending in a crisis, such as a civil war, by printing money excessively, often leading to hyperinflation, a condition where prices can double in a month or less. Another cause can be a rapid decline in the demand for money, as happened in Europe during the Black Death.
The money supply is also thought to play a major role in determining moderate levels of inflation, although there are differences of opinion on how important it is. For example, Monetarist economists believe that the link is very strong; Keynesian economics, by contrast, typically emphasize the role of aggregate demand in the economy rather than the money supply in determining inflation. That is, for Keynesians the money supply is only one determinant of aggregate demand. Some economists consider this a 'hocus pocus' approach: They disagree with the notion that central banks control the money supply, arguing that central banks have little control because the money supply adapts to the demand for bank credit issued by commercial banks. This is the theory of endogenous money. Advocated strongly by post-Keynesians as far back as the 1960s, it has today become a central focus of Taylor rule advocates. But this position is not universally accepted. Banks create money by making loans. But the aggregate volume of these loans diminishes as real interest rates increase. Thus, it is quite likely that central banks influence the money supply by making money cheaper or more expensive, and thus increasing or decreasing its production.
A fundamental concept in Keynesian analysis is the relationship between inflation and unemployment, called the Phillips curve, This model suggests that there is a trade-off between price stability and employment. Therefore, some level of inflation could be considered desirable in order to minimize unemployment. The Phillips curve model described the U.S. experience well in the 1960s but failed to describe the combination of rising inflation and economic stagnation (sometimes referred to as stagflation ) experienced in the 1970s.
Thus, modern macroeconomics describes inflation using a Phillips curve that shifts (so the trade-off between inflation and unemployment changes) because of such matters as supply shocks and inflation becoming built into the normal workings of the economy. The former refers to such events as the oil shocks of the 1970s, while the latter refers to the price/wage spiral and inflationary expectations implying that the economy "normally" suffers from inflation. Thus, the Phillips curve represents only the demand-pull component of the triangle model.
Another Keynesian concept is the potential output (sometimes called the "natural gross domestic product"), a level of GDP, where the economy is at its optimal level of production given institutional and natural constraints. (This level of output corresponds to the Non-Accelerating Inflation Rate of Unemployment, NAIRU, or the "natural" rate of unemployment or the full-employment unemployment rate.) If GDP exceeds its potential (and unemployment is below the NAIRU), the theory says that inflation will accelerate as suppliers increase their prices and built-in inflation worsens. If GDP falls below its potential level (and unemployment is above the NAIRU), inflation will decelerate as suppliers attempt to fill excess capacity, cutting prices and undermining built-in inflation.
However, one problem with this theory for policy-making purposes is that the exact level of potential output (and of the NAIRU) is generally unknown and tends to change over time. Inflation also seems to act in an asymmetric way, rising more quickly than it falls. Worse, it can change because of policy: for example, high unemployment under British Prime Minister Margaret Thatcher might have led to a rise in the NAIRU (and a fall in potential) because many of the unemployed found themselves as STRUCUTALL UNEMPLYED (also see unemployment), unable to find jobs that fit their skills. A rise in structural unemployment implies that a smaller percentage of the labor force can find jobs at the NAIRU, where the economy avoids crossing the threshold into the realm of accelerating inflation.
Monetarism
Monetarists assert that the empirical study of monetary history shows that inflation has always been a monetary phenomenon. The quantity theory of money, simply stated, says that the total amount of spending in an economy is primarily determined by the total amount of money in existence. From this theory the following formula is created:
Where P is the general price level of consumer goods, DC is the aggregate demand for consumer goods and SC is the aggregate supply of consumer goods. The idea is that the general price level of consumer goods will rise only if the aggregate supply of consumer goods falls relative to aggregate demand for consumer goods, or if aggregate demand increases relative to aggregate supply. Based on the idea that total spending is based primarily on the total amount of money in existence, the economists calculate aggregate demand for consumers' goods based on the total quantity of money. Therefore, they posit that as the quantity of money increases, total spending increases and aggregate demand for consumer goods increases too. For this reason, economists who believe in the Quantity Theory of Money also believe that the only cause of rising prices in a growing economy (this means the aggregate supply of consumer goods is increasing) is an increase of the quantity of money in existence, which is a function of monetary policies, generally set by central banks that have a monopoly on the issuance of currency, which is not pegged to a commodity, such as gold.
World Bank has called the countries of east asia for resolute actions on struggle against a rise in prices for southeast Asia, than credit crisis, is spoken on aprile, 1 st in the simi-annual review of bank.
ACCORDING TO EXPERTS OF BANK,GROWTH OF ECENOMY OF EAST ASIA CAN BE SLOWED DOWN IN THE CURRENT YEAR BASED ON THE INFORMATION COLLEECTED FROM WORLD BANK WEBSITE I HAVE REALISED THAT US ON 1-2 PERCENTAGE ITMES TO 8.5%, RECESSION IN THE USA WHICH WILL REDUCE DEMAND FOR EXPORT
According to experts of bank, growth of economy of East Asia can be slowed down in the current year on 1-2 percentage items to 8,5 %. Recession in the USA which will reduce demand for export production from region becomes a slowing down Principal cause.
Howver experts of bank consider, that the impetuous rise in prices for the foodstuffs and fuel is more essential risk for the governments. Since 2003 of the price on various raw and articles of food have grown three times or two.
"While crisis of hypothecary crediting of borrowers with a low rating in the USA, will make the negative impact – in various degree on the separate countries – most a vital issue for all countries of East Asia is the inflation which growth rates are accelerated to unacceptable levels", - Jim Adams (Jim Adams), the vice-president of branch of the World bank across East Asia and Pacific region has declared.
The heaviest burden, it is marked in the review, inflation lays down on shoulders of marginal population rural and urban population where expenses for the foodstuffs make from third to two thirds of incomes. Thus, if the prices for fuel mention everything marginal population feels their growth most painfully. The proceeding rise in prices for the foodstuffs, metals and fuel can lead to the aggregated reduction of gross national product of region on 1 percentage item.
However, in the report it is noticed, that the separate countries which are exporters of primary goods, have got some advantage thanks to a rise in prices in the raw market that is reflected in increase in incomes of their population. However heavy prices for the foodstuffs, bringing more high returns to large farmers, become additional burden for small manufacturers. Thus control attempts over the prices lead to only time effect and create the favorable environment for black market blossoming.
Before the government already faced similar problems, applying various programs of subsidising or tax indulgences for not protected layers. "Time has come again to recollect these programs and to introduce them into a life until when problems become too sharp", - is spoken in the review.
Rates of economic growth at level of 8,5 % become the lowest for East Asia since 2002. In 2007 they made about 10,2 %. "The East Asian economy will pass the period of serious test on durability in 2008", - is spoken in the report. The bank bases the estimations of development of economy of East Asia on the precondition, that gross national product of the USA will show growth rates in 2008 at level of 0,5 %-1,4 %, against 2,2 % in 2007.
Growth of gross national product of China is expected at level of 8,6 % against more than 10 % the last years. Growth of economy of Indonesia, Malaysia, Thailand and Philippines will be reduced to a range in 5 %-6 %. Growth in Hong Kong, Singapore, on Taiwan and in South Korea will be slowed down to 4,6 %.
Nevertheless, the World bank highly appreciates economic potential of region.
The World Bank predicted in its latest six-month review, released Tuesday, of the East Asia and Pacific region's economies that the economic growth of East Asia, including China, will be dragged down by inflation.
In the report, the World Bank said the rising prices of grains and energy, and not the United States sub-prime crisis, threaten the development of East Asia.
"East Asian economies will face testing times in 2008," said the report, adding there are some uncertain elements in the international economy.
The World Bank cut its forecast for East Asia excluding Japan from 8.2 percent to 7.3 percent in 2008.
Growth of East Asian developing economies in this global slowdown scenario is expected to fall to 8.6 percent in 2008, the lowest since 2002, down from 10.2 percent in 2007, said the report.
Developing East Asian economies cover all countries and regions in East Asia, with the exception of Japan, Singapore, South Korea, China's Hong Kong and Taiwan Province.
China's growth is expected to finally dip below 10 percent after five consecutive years of double-digit growth, mainly due to lower export growth, said the report.
Meanwhile, the report also predicted the US growth at between 0.5 and 1.4 percent in 2008, lower than last year's 2.2 percent.
The Asian Development Bank yesterday reduced its growth forecast for China to 10 percent this year from 11.4 percent in 2007
CORE INFLATION:
THE MEASURE OF INFLATION:
HISTORICAL CONSUMER PRICE INDEX
HISTORICAL INFLATION TABLES
METHOD OF CALCULATING INFLATION RATES
MACRO ECONOMIC DISEQUILIB
