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Q4. Disadvantages:

- A rise in prices will lead to lower levels of saving amongst the population, lower savings and therefore this will produce a lower income within the economy and the country's population will see a drop in living standards and rise in poverty.
- Inflation may also create an unfavorable environment for foreign investment which may lead to slower economic growth.
- Labour may be affected (in terms of lower wage rises) as a result of government policies to hold down wage rises in a bid to control inflation. Meanwhile, they will also see a drop in real disposable income that will reduce their purchasing power.
- Inflation will make the price of products uncompetitive and therefore reduce the demand for the country's exports and its demand in the domestic economy as well with people preferring imported goods. This will cause a trade in balance deficit.
- Inflation will also mean a greater money supply in the market which may lead to the depreciation of the currency.
- MNCs may be tempted to leave the economy if inflation makes business in the economy unprofitable which will have significant repercussions on economic growth and GDP.

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By shalendra and Aryan
Q1. Facts on UAE inflation

UAE inflation hit a 6 year high with a dramatic increase since 2009.According to the National Bureau of Statistics, food and soft drinks saw the largest monthly increase in prices in July, followed by transportation. Conversely, textiles, clothing and footwear registered the largest decrease.
Businesses in the Gulf raised around $16bn from share issues in the past year. That’s the same amount that Qatar Airways agreed to pay when it signed a deal to buy 80 A350 jets from Airbus last year.
According to a recent market study, the UAE mortgage market is set to grow from around $5.4bn by the end of this year to around $17.4bn by the end of 2011.

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Ans.3 Inflation, defined as an increase in price of a basket of goods for a specific period of time, can be brought about by two main ways. A rise in prices will lead to lower levels of saving amongst the population, lower savings and therefore inflation will in turn produce a hostile environment for investment that will contribute to lower profits or returns, therefore lower income and arrested economic growth.
Secondly, a rise in the price of good will discourage the consumption of domestic products and encourage the consumption of imports therefore possibly leading to a balance of payments deficit and hindering the balance of payments position of the economy.
Since inflation can be seen as a product of a prolonged period of money supply surplus, it an lead to the depreciation of the currency if it is operating on a floating exchange rate or exhaust the country's reserves of foreign currency and gold to buy domestic currency in a bid to maintain parity, in the case where it is operating on a fixed exchange rate system.

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Moderate inflation enables adjustment of wages. But, if average wages are rising due to moderate inflation, it is easier to increase the wages of productive workers; unproductive workers can have their wages frozen – which is effectively a real wage cut. If we had zero inflation, we could end up with more real wage unemployment, with firms unable to cut wages to attract workers.

Inflation can boost growth. At times of very low inflation the economy may be stuck in a recession. Targeting a higher rate of inflation can enable a boost in economic growth as firms overestimate the effect of inflation, and may thus increases efficiency and quality even though a small rise in inflation has negligible effect on prices.

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1) Inflation is expected to rise by 2.10% by the end of this quarter
2) More inflation causes less jobs which causes poorly motivated people which causes poor production which again causes inflation
3) Inflation decreases the real value of debt, allows the adjustment of wages and adjustment of related prices. It also boosts economic growth
4) Inflation discourages investment and long term economy growth. It can also make an economy noncompetitive, especially in the Eurozone. Inflation reduces the value of savings and causes a fall in real wages.
5) A rise in prices means money buys less goods which decreases the value of money. Monetary value of assets also falls
6) Through contractionary monetary policies which aim to reduce money supply within an economy. There are three ways to do this: increase interest rates, increase reserve requirements and directly or indirectly reduce money supply by enacting policies that encourage production of money supply

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There are many methods used to control inflation, for example, controlling inflation through wage and price controls can cause a recession and hurt the people whose jobs are lost because of it.

One method of controlling inflation is through contractionary monetary policy. The goal of a contractionary policy is to reduce the money supply within an economy. This helps reduce spending because when there is less money to go around, those who have money want to keep it and save it, instead of spending it. There are three main ways to carry out a contractionary policy.

The first is to increase interest rates through the Central Bank. The second method is to increase reserve requirements on the amount of money banks are legally required to keep on hand to cover withdraws. The third method is to directly or indirectly reduce the money supply by enacting policies that encourage reduction of the currency supply.

(By Parma and Sultan)

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What are your views about rising prices of day
to day goods and services?

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What are your views about rising prices of day
to day goods and services?

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Higher prices mean that we have to pay more. As the prices increase, the governments increase the salaries of their employees but, the private employees don’t get any such benefits. Everything we earn is spent on buying necessary things which results in us having no savings.

(By Parma and Sultan)

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What are the problems that erupt due to
inflation?

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What are the problems that erupt due to
inflation?

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When inflation rises faster than wages, people have less purchasing power. This is especially true for retirees and others who may have a fixed income. Creditors may also lose money if they do not consider inflation in the calculation of loan interest.

Inflation can also make the prices of domestic products less competitive and desirable when compared to other countries' prices hence furthering a cycle of economic disjoint, lending itself to a lower GDP. Additionally, it also costs businesses money to update labels, menus and other lists when inflation causes the prices of goods and services to rise.

(By Parma and Sultan)

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When the economy is not running at capacity, meaning there is unused labor or resources, inflation theoretically helps increase production. More money translates to more spending, which equates to more aggregated demand. More demand, in turn, triggers more production to meet that demand. If consumer prices are allowed to fall consistently because the country is becoming too productive, consumers learn to hold off their purchases to wait for a better deal.

The net effect of this paradox is to reduce aggregate demand, leading to less production, and a faltering economy. Inflation also makes it easier on debtors, who repay their loans with money that is less valuable than the money they borrowed. This encourages borrowing and lending, which again increases spending on all levels.

(By Parma and Sultan)

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Why is inflation a vicious point of circle in an
economy?

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Why is inflation a vicious point of circle in an
economy?

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The terms vicious point of circle refers to a complex chain of events which reinforce themselves through a feedback loop. A vicious circle has detrimental results and inflation is referred to as a vicious point of circle as its repeats itself and follows a trend.

Inflation can be harmful to a country as Inflation can be a problem when it is unexpected or very high, which can result in economic instability and people being afraid to spend money, which hinders economic growth. Furthermore, inflation can make products and services unaffordable to those on fixed-income by reducing the existing purchasing power of these fixed wages as well as reducing real - income in the economy. It can also cause creditors to lose money and create a negative impact on a country's trade.

(By Parma and Sultan)

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Inflation is when the economy grows due to increased spending. When this happens, prices rise and the currency within the economy is worth less than it was before. This basically means that inflation is the rate at which the general level of prices for goods and services is rising and, consequently, the purchasing power of currency is falling. ​

A report recently issued by the Dubai Statistics Center (DSC) showed that annual inflation of the consumer price index (CPI) for goods and services has risen by 4.33% in February 2015, compared to the same period of 2014. On the other hand, the DSC report suggested that monthly inflation of the Consumer Price Index (CPI) for Goods and Services group has risen by 0.24% in February 2015, compared to January 2014.

(By Parma and Sultan)

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1) ​A report issued yesterday by Dubai Statistics Center (DSC) indicated a raise in the annual inflation rate for Consumer Price Index (CPI) by 4.21% in December 2014 compared to the same period in 2013. Tobacco Group ranked first at 10.41%, followed byClothing and Footwear at 7.90%, housing, water, electricity, gas and other fuels at 7.70% while the Food and Beverage was declined at 1.77% and Recreation & Culture at 0.80%.

2) Inflation can create a random redistribution of income given that inflation does not have an equal impact on individuals and groups. For example, individuals who can protect their earnings or their assets from inflation will increase their income relative to those who cannot.  Similarly, borrowers do better at times of rising prices because the real value of their repayments are reduced over time. Lenders need to charge a higher interest rate to compensate for the falling value of the repayments to them, and for the loss of liquidity suffered as the value of repayments fall.

3) It is argued a moderate rate of inflation makes it easier to adjust relative wages. For example, it may be difficult to cut nominal wages (workers resent and resist nominal wage cut). But, if average wages are rising due to moderate inflation, it is easier to increase the wages of productive workers; unproductive workers can have their wages frozen

4) A rise in the price level means, that money can buy fewer goods. If assets are stored in a monetary form, inflation means that asset values fall.

When average prices rise, the price mechanism cannot effectively fulfil its role as a resource allocating mechanism. Markets work best when prices rise and fall, providing information about relative values, but if average prices rise continuously, with increases outweighing decreases, resource allocation is distorted.

5) Inflation is usually considered to be a problem when the inflation rate rises above 2%. The higher the inflation, the more serious the problem is. In extreme circumstances, hyper inflation can wipe away peoples savings and cause great instability.

6) Higher interest rates and cheaper imports

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Inflation - Emile Timothy and Bilal Hameed The level of Inflation in the Uinited Arab Emirates is often compared with the base year of 2007 considerably due to its moderate stability of price, so the general price indice is often used as a reference to this year, In the 100s unit. During the past 2 years, Dubai - in particular - has been experiencing a significant level of hyper-inflation, primarily as a result of the Expo 2020, which has also led to the creation and imposition of the VAT system. The level of inflation is currently 9.6% of what it was during 2007. Inflation is caused mostly as a result of an excess aggregate demand, which is caused by the summation of demand from governments, investors, consumers and exports - imports. Considering that the UAE spent approximately $62 B to construct 30 themed parks, and that most businesses in the gulf raised $16 B, this has led to a vicious construe in the circle of inflation, primarily for those civilians and immigrants residing in the country - of which there are many. Inflation tends to have negative effects, as the worth of money decreases, as their money supply remains the same, but the prices of goods and services have increased. This means that purchasing power of the consumers has substantially decreased, and that the GDP has increased. All because of the basic pulling power of demand and supply. In order to prevent inflation, all governments must impose taxes, to reduce the income and purchasing power of citizens, also In a bid to increase government expenditure. 

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Inflation - Emile Timothy and Bilal Hameed The level of Inflation in the Uinited Arab Emirates is often compared with the base year of 2007 considerably due to its moderate stability of price, so the general price indice is often used as a reference to this year, In the 100s unit. During the past 2 years, Dubai - in particular - has been experiencing a significant level of hyper-inflation, primarily as a result of the Expo 2020, which has also led to the creation and imposition of the VAT system. The level of inflation is currently 9.6% of what it was during 2007. Inflation is caused mostly as a result of an excess aggregate demand, which is caused by the summation of demand from governments, investors, consumers and exports - imports. Considering that the UAE spent approximately $62 B to construct 30 themed parks, and that most businesses in the gulf raised $16 B, this has led to a vicious construe in the circle of inflation, primarily for those civilians and immigrants residing in the country - of which there are many. Inflation tends to have negative effects, as the worth of money decreases, as their money supply remains the same, but the prices of goods and services have increased. This means that purchasing power of the consumers has substantially decreased, and that the GDP has increased. All because of the basic pulling power of demand and supply. In order to prevent inflation, all governments must impose taxes, to reduce the income and purchasing power of citizens, also In a bid to increase government expenditure. 

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Inflation in the UAE has decreased significantly over the years. Dubai: Inflation in the UAE is under control and, in the past four months, it has been under 2 per cent, said Dr Cedwyn Fernandes, director, Middlesex University Dubai.

When compared to April 2015, the overall inflation rate in Dubai is 1.9 per cent, he said.

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The level of Inflation in the United Arab Emirates is often compared with the base year of 2007 considerably due to its moderate stability of price

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Q6. Provide solutions to control Inflation

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Q6. Provide solutions to control Inflation

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making imports cheaper.

Reducing demand for exports

Increasing incentive for exporters to cut costs.

higher interest rates

reducing budget deficit

Control of money being created by government

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Q5. What are your views about rising day to day goods and services?

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Q5. What are your views about rising day to day goods and services?

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Inflation hurts your buying power. That's because rising prices mean you have to pay more for the same goods and services. Inflation can help you if you are the lucky recipient of income inflation. You can also benefit from asset inflation, such as in housing or stocks, if you own that asset before the price rises. However, if your income increases at a slower rate than general inflation, your buying power declines even if you are making more.

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Q3. What are the problems that erupt due to inflation?

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Q3. What are the problems that erupt due to inflation?

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1. High inflation rates tend to cause uncertainty and confusion leading to less investment. It is argued that countries with persistently higher inflation, tend to have lower rates of investment and economic growth.

2. Inflation can reduce the real value of savings, which might particularly affect old people who live on savings. However, it does depend on whether interest rates are higher than the inflation rate.
3. Higher inflation leads to lower international competitiveness.

4. Menu costs. – Costs of changing price lists.

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Q3. What are the advantages of Inflation?

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Q3. What are the advantages of Inflation?

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1. Deflation is potentially very damaging to the economy and can lead to lower consumer spending and lower growth. For example, when prices are falling, consumers are encouraged to delay purchasing. A moderate inflation rate reduces the real value of debt.
2. A moderate inflation rate reduces the real value of debt. If there is deflation, the real value of debt increases leading to a squeeze on disposable incomes.
3. Moderate rates of inflation allows prices to adjust.

4. Moderate rates of inflation is sign of a healthy economy. With economic growth, we usually get a degree of inflation.

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Q2. Why is inflation a vicious point of circle in an Economy

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Q2. Why is inflation a vicious point of circle in an Economy

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Inflation tends to discourage investment and long term economic growth. This is because of the uncertainty and confusion that is more likely to occur during periods of high inflation. Low inflation is said to encourage greater stability and encourage firms to take risks and invest.

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1. Economic growth in the UAE rose 7.4 percent last year from the year before according to the Ministry of Economy. The country recorded 11.1 percent inflation in 2007, and rental costs contributed nearly 18 percent of that figure.
2. Businesses in the Gulf raised around $16bn from share issues in the past year. That’s the same amount that Qatar Airways agreed to pay when it signed a deal to buy 80 A350 jets from Airbus last year.
3. The country is expected to have invested around $62bn to construct around 30 entertainment resorts and theme parks in UAE by 2012.
4. The central bank says that home loans in the UAE jumped 55 percent in the year to March. Reports say that Dubai currently has active construction projects valued at almost $300bn.
5. According to a recent market study, the UAE mortgage market is set to grow from around $5.4bn by the end of this year to around $17.4bn by the end of 2011.

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Collect facts on inflation in UAE
Why is inflation a vicious point of circle in an economy?
What are the advantages of inflation?
What are the problems that erupt due to inflation?
What are your views about rising prices of day to day goods and services?
Provide solutions to control inflation.

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Aims of the government