UNIVERSIDAD AUTÓNOMA DE TLAXCALA
FACULTAD DE CIENCIAS ECONÓMICO ADMINISTRATIVAS
LICENCIATURA EN NEGOCIOS INTERNACIONALES
UNIDAD DE APRENDIZAJE: COMPRENSIÓN DE TEXTOS ACADÉMICOS EN INGLÉS
NOMBRE DEL PROYECTO: INFLATION
GRUPO: 2°A
DELGADO GARCÍA KARLA PAOLA
ENRÍQUEZ OROPEZA ALONDRA
MONTIEL BECERRA DANNA VALERIA
SANCHEZ BAUTISTA LUIS ANGEL
Contenido
INTRODUCTION ................................................................................................................... 1
INFLATION ............................................................................................................................ 1
MEASURING INFLATION ..................................................................................................... 1
THE GOOD AND THE BAD................................................................................................... 2
WHAT CREATES INFLATION? ............................................................................................. 3
HOW POLICYMAKERS DEAL WITH INFLATION ................................................................. 3
IN OUR OPINION .................................................................................................................. 4
INTRODUCTION
Inflation is an unavoidable phenomenon in economies around the world that causes
increases in the overall level of prices of goods and services. Inflation affects people's
spending and investment decisions, their saving habits, and even plays a role in
shaping macroeconomic outcomes. Those who don't have a thorough understanding
of what inflation is and how it works may struggle to navigate the unpredictable and
often volatile financial landscape.
INFLATION
Inflation is a way of observing the behavior of a country's economy, this is definitely
not a positive indicator since it means the increase in the cost of living and the loss of
purchasing power. Inflation is a phenomenon that occurs in all countries of the world
and is undoubtedly a problem that all politicians when seeking political office promise
to combat, however we could consider that it is a daily occurrence, something that
inevitably must happen but also serves as a way to identify and plan strategies that
test the central banks of the countries to stabilize the country and avoid financial
catastrophes.
MEASURING INFLATION
Consumers' cost of living is measured through the consumer price index (CPI), which
reflects the percentage change in the cost of a basket of commonly purchased goods
and services. This index is compared to a base year to determine inflation, which is
an important indicator of a country's economic health. Core inflation focuses on
persistent trends, excluding volatile prices such as food and energy. To measure a
country's headline inflation, an index with greater coverage, such as the GDP deflator,
is used.
The CPI basket is occasionally updated to reflect changes in consumption patterns,
such as the inclusion of new technological products. On the other hand, the GDP
1
deflator includes non-consumption expenditures, such as military spending, so it is not
an accurate measure of the cost of living. Both indices are important for understanding
how prices evolve over time in an economy.
THE GOOD AND THE BAD
It is important to keep in mind that to the extent that the nominal income of households,
which they receive in current money, does not increase as much as prices, their
situation is worse, because they can afford to buy less. In other words, your
purchasing power or real income falls.
We always consider that prices change at different rates. In an inflationary
environment, uneven price increases inevitably reduce the purchasing power of some
consumers.
Inflation can also distort purchasing power over time for recipients and payers of fixed
interest rates. The lender's actual income, of course, is affected.
In fact, many countries have struggled with high inflation and, in some cases,
hyperinflation of 1,000 percent or more per year. Such high levels of inflation have
been disastrous, and countries have had to take difficult and painful policy measures
to return inflation to reasonable levels, sometimes giving up their national currency.
Although high inflation hurts an economy, deflation or falling prices are also
undesirable. When prices fall, consumers delay purchasing if they can, anticipating
lower prices in the future. For the economy this means less economic activity, less
income generated by producers and less economic growth.
Most economists now believe that low, stable and, most importantly, predictable
inflation is good for an economy. If inflation is low and predictable, it is easier to
capture it in price and interest rate adjustment contracts, reducing its distorting impact.
Additionally, knowing that prices will be slightly higher in the future gives consumers
an incentive to make purchases sooner, which boosts economic activity. Many central
bankers have made maintaining low and stable inflation a primary policy objective, a
policy called inflation targeting.
2
WHAT CREATES INFLATION?
The text tells us about the various determinants of inflation, highlighting the importance
of monetary policy, supply and demand shocks, as well as expectations in the
formation of this economic phenomenon.
Firstly, it is noted that prolonged episodes of high inflation are usually attributed to lax
monetary policy, where a disproportionate growth of the money supply in relation to
the size of the economy results in a decrease in the value of the currency and an
increase in generalized prices.
Furthermore, it is highlighted that both the pressures on supply and demand can be
inflationary. Supply shocks, such as natural disasters or increases in production costs,
can reduce aggregate supply and generate cost-driven inflation.
Likewise, demand shocks, such as stock market rallies or expansionary government
policies, can temporarily increase aggregate demand and economic growth. However,
if this increase exceeds the productive capacity of the economy, it can result in inflation
due to excess demand.
HOW POLICYMAKERS DEAL WITH INFLATION
As we mentioned at the beginning, inflation is a phenomenon that central banks must
pay close attention to, as there are currently monetary policies aimed at lowering
inflation levels in the world economy.
A negative side is that in some cases the increase in inflation does not depend on
national factors, but on global issues, such as war or shortages. One of the examples
mentioned is the 2008 crisis, where the prices of products climbed to high levels, in
this case the monetary policies of the central banks helped to stabilize the economy
of each individual country. This reiterates the importance of keeping stabilization
strategies in place in a responsible way.
3
IN OUR OPINION
We can say that inflation is a phenomenon that manifests itself at various levels and
due to causes such as an increase in demand, an increase in the circulating currency
or an increase in the prices of imported products. There are many social sectors that
are affected by inflation, so it is important to know the concept and how to avoid it.
Thanks to Financial Education, we acquire basic knowledge and skills to better manage our
resources and carry out digital operations in a simple, accessible and secure way. Financial
education offers us tools, skills, and knowledge with which we can make more informed
decisions.
Finally, the importance of inflation is determined by the fact that it marks everyone's
purchasing power. When prices go up and your income doesn't go up at the same rate, you
lose purchasing power.
