INFLATION combat measures

INTRODUCTION

Inflation is a sustained and significant increase in the general price level over a period of time and a simultaneous decline in the buying power of money.

Fiscal policy — Demand-pull inflation

• Reduces government spending and aggregate demand.

• Higher taxes reduce disposable income and consumer spending.

• Lower government borrowing limits additional spending in the economy.

• Tax rebates can encourage productivity and increase production.

Monetary policy — Demand-pull inflation

• Higher interest rates discourage borrowing and spending.

• Reduced demand helps stabilise prices.

• Credit restrictions reduce excessive lending and spending.

• Selling government bonds withdraws money from circulation.

Productivity — Cost-push inflation

• Higher productivity reduces production costs per unit.

• Wage increases linked to productivity help control labour costs.

• Better-skilled workers improve production efficiency.

• Improved technology increases output and reduces cost pressures.

Competition — Cost-push inflation

• Domestic competition limits excessive price increases.

• International competition increases consumer choice.

• Competition discourages excessive profit margins.

• More competitive markets can improve efficiency and reduce production costs.