consequently, annual inflation is also an erosion in the purchasing power of money – a loss of real value in the internal medium of exchange and unit of account in the economy. A chief measure of price inflation is the inflation rate, the annualized percentage change in a general price index (normally the Consumer Price Index) over time.Inflation's effects on an economy are manifold and can be simultaneously positive and negative. Negative effects of inflation include a decrease in the real value of money and other monetary items over time; uncertainty about future inflation may discourage investment and saving, or may lead to reductions in investment of productive capital and increase savings in non-producing assets. e.g. selling stocks and buying gold. This can reduce overall economic productivity rates, as the capital required to retool companies becomes more elusive or expensive. High inflation may lead to shortages of goods if consumers begin hoarding out of concern that prices will increase in the future. Positive effects include a mitigation of economic recessions, and debt relief by reducing the real level of debt.
Economists generally agree that high rates of inflation and hyperinflation are caused by an excessive growth of the money supply.[6] Views on which factors determine low to moderate rates of inflation are more varied. Low or moderate inflation may be attributed to fluctuations in real demand for goods and services, or changes in available supplies such as during scarcities, as well as to growth in the money supply. However, the consensus view is that a long sustained period of inflation is caused by money supply growing faster than the rate of economic growth.
Today, most mainstream economists favor a low steady rate of inflation. Low (as opposed to zero or negative) inflation may reduce the severity of economic recessions by enabling the labor market to adjust more quickly in a downturn, and reduce the risk that a liquidity trap prevents monetary policy from stabilizing the economy. The task of keeping the rate of inflation low and stable is usually given to monetary authorities. Generally, these monetary authorities are the central banks that control the size of the money supply through the setting of interest rates, through open market operations, and through the setting of banking reserve requirements.
Singapore Dollar, Asia Stocks Advance as Recovery Accelerates
The Singapore dollar strengthened the most in a year against the U.S. currency and South Korea’s won jumped after government reports showed accelerating economic growth. Technology shares led a rally in Asian stocks after Intel Corp.’s sales forecast beat analysts’ estimates.
The Monetary Authority of Singapore revalued its currency, sending it 1.1 percent higher against the dollar to S$1.3782 as the government said the economy will expand as much as 9
percent this year. The won jumped 0.8 percent versus the dollar. The MSCI Asia Pacific Index gained 0.5 percent to 128.09 at 1:45 p.m. in Tokyo, and Standard & Poor’s 500 Index futures increased 0.2 percent. Intel shares rose as much as 3.6 percent in extended trading after the New York close.Accelerating growth in Singapore and the biggest drop in Korean unemployment in a decade underscored Asia’s leadership in the global recovery. Economists surveyed by Bloomberg News estimated China’s economy probably grew 11.7 percent in the first quarter, the fastest pace in almost three years. Intel’s forecast increased optimism as the U.S. earnings season starts.
“Companies are demonstrating that economic conditions are improving, while the data is still pointing to an ongoing theme of recovery,” said Prasad Patkar, who helps oversee $1.9 billion at Platypus Asset Management Ltd. in Sydney. “You now need to watch the underlying performance of the global economy once all the stimulus has washed through.”
Equities Gain
Singapore’s Straits Times Index advanced to crack the 3,000 level for the first time since June 2008, gaining as much 1.1 percent. The city-state’s $182 billion economy rose an annualized 32.1 percent from the previous three months in the first quarter. DBS Group Holdings Ltd., Southeast Asia’s biggest lender, climbed as much as 3.6 percent.
South Korea’s Kospi stock index rose 0.8 percent after the nation’s unemployment rate declined to 3.8 percent in March from 4.4 percent in February. The won appreciated to 1,115.10.
KB Financial Group Inc. gained 3.6 percent and Shinhan Financial Group Co. added 3.8 percent. Samsung Electronics Co., the world’s largest computer-memory chipmaker, climbed 1.7 percent after Intel forecast second-quarter revenue at $10.2 billion, plus or minus $400 million. Analysts had estimated $9.72 billion, according to a Bloomberg survey.
Tokyo Electron Ltd., the world’s second-largest maker of semiconductor equipment and an Intel supplier, jumped as much as 4.9 percent after the company said orders climbed. Unisem Bhd., Malaysia’s biggest semiconductor packaging and test-services company, advanced as much as 6 percent.
Malaysia’s ringgit followed the Singapore dollar higher, climbing as much as 0.7 percent to 3.2000. The Thai baht strengthened reached 32.24, the strongest level since May 2008.
‘Behind the Curve’
“Finally, Singapore’s GDP release represents the start of a series of strong Asian first-quarter numbers which will emphasize that central banks across the region have fallen significantly behind the curve,” said Robert Prior-Wandesforde, an economist at HSBC in Singapore.
Copper futures on the London Metal Exchange gained as much as 0.9 percent to $7,968 a metric ton, and traded at $7,960. Aluminum rose as much as 0.7 percent to $2,452 a ton, the highest level since September 2008.
The yen weakened for a fifth day against the euro, the longest losing streak in three months, as signs the global economy is recovering boosted demand for riskier assets.
‘Solid Economic Data’
“Risk appetite is improving, buoyed by solid economic data and corporate profits,” said Norihiro Tsuruta, chief strategist in Tokyo at Shinko Research Institute Ltd. ”This will encourage a fund allocation shift away from the yen.”
The Japanese currency fell against 15 of its 16 most-traded counterparts, declining 0.3 percent to 127.23 per euro. Europe’s single currency strengthened to $1.3653 in Tokyo from $1.3614 in New York yesterday.
New Zealand’s dollar weakened against all major peers as a government report showed retail sales unexpectedly dropped in February, adding to signs the central bank will keep interest rates at a record low. New Zealand’s dollar fell 0.3 percent to 71.18 U.S. cents and 0.2 percent to 66.36 yen.
The cost of protecting Japanese corporate bonds from default was on course to fall to its lowest level since June 2008, with the Markit iTraxx Japan index dropping 2 basis points to 85 basis points, according to Deutsche Bank AG and CMA DataVision in New York. Indicators of corporate credit risk also fell in Australia and Asia.
Investors use the default-swap indexes to hedge against losses on corporate debt or speculate on creditworthiness, and the swaps typically fall as investor confidence increases.
The Markit iTraxx Asia index of 50 investment-grade borrowers outside Japan dropped 1 basis point to 89.5 basis points, while the Markit iTraxx Australia index fell 2 basis points to 77.5 basis points, Deutsche Bank prices show. A basis point is 0.01 percentage point.
Crude oil snapped five days of declines as a drop in the dollar made commodity investments more attractive. Oil rebounded from earlier lows today to trade at $84.36 a barrel in New York, up 0.4 percent.
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