In a market economy, prices for goods and services can always change. Some prices rise; some prices fall. Inflation occurs when there is a broad increase in the prices of goods and services, not just of individual items; it means, we can buy less for Tk 1 today than we could yesterday.
Long-lasting episodes of high inflation are often the result of lax monetary policy. If the money supply grows too big relative to the size of an economy, the unit value of the currency diminishes; in other words, its purchasing power falls and prices rise.
Inflation as measured by the consumer price index reflects the annual percentage change in the cost to the average consumer of acquiring a basket of goods and services that may be fixed or changed at specified intervals, such as yearly.
The Laspeyres formula is generally used. The annual inflation rate in Bangladesh eased to 9.10 percent in September of 2022 from 9.52 percent in the previous month. Prices rose at a softer pace for food but they increased faster for non-food products.
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According to IMF, the world inflation rate in 2021 was 4.7 percent, this year it may reach at 8.8 percent and the inflation rate is projected for 2023 is 6.5 percent. Inflation is perceived differently by everyone depending upon the kind of assets they possess.
For someone with investments in real estate or stocked commodity, inflation means that the prices of their assets are set for a hike. For those who possess cash, they may be adversely affected by inflation as the value of their cash erodes.