Inflation Rates and Housing

Readers Question: However I was intrigued by something I read on the internet regarding Conservative plans to include housing costs in the Bank of England’s inflation target. Mortgage interest payments are included in the RPI measure of inflation. However, the official measure of inflation is currently the CPI. The CPI excludes mortgage interest payments. It …

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Has Printing Money Helped? (2009)

A good thing about studying economics is that new issues crop up. A year ago, few people would have heard of quantitative easing, but, now it is has become an important part of UK monetary policy. Because it is relatively untried, there is a degree of uncertainty how it will work and whether it will …

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Legalisation of Heroin?

Heroin is a classic example of a demerit good: People ignore or underestimate the costs of consuming heroin. In other words people make bad choices about deciding to consume this very addictive good. Heroin consumption also has negative externalities for the rest of society. Heroin addicts become less productive, often unable to hold down a …

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Sensex Indian Stock Market

Readers Question: What is Sensex and impact on economy?

The Sensex is the leading measure for the Indian Stock Market. It is based on the 30 Largest trading companies on the Bombay Stock Exchange BSE (India’s primary financial market)

Like other indexes, the Sensex is recalculated at various times to change the 30 largest trading companies. It was started on 01 Jan 1986 and uses a base year of 1978-79 and a base value of 100.

Since it’s introduction in the mid 1980s it has achieved above inflationary increase, benefiting from India’s improved economic performance.

As of 2009, the Indian stock market has averaged a yearly increase of 18.6% per annum or 9% a year in real terms.

However, after its peak of 20,873 in Jan 2008, the index has been hit by the global credit crunch and economic slowdown, which saw the index fall to 12,000 by May 2009.

Outlook for Sensex and Indian Economy

The Indian economy appears to have weathered the global economic downturn better than many of the other developed countries. Economic growth has remained positive and India continues to achieve one of the highest growth rates in the world after China. There is still tremendous potential in the Indian economy; however, it is hard to know how much future expected growth is already priced into the Sensex.

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Question: Why is Inflation negative when prices are rising?

Readers Question: Why is Inflation negative when prices are rising? In 2009, there was a brief period of negative inflation (RPI measure of inflation was negative) Often people ask, how come the inflation rate is negative when I notice prices rising? Firstly, if prices in the basket of goods used to measure inflation are rising, …

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Is Chinese Growth too dependent on exports?

Readers Comment (Ralph Musgrave) from Why is Chinese Yuan undervalued You claim “Chinese growth is dependent on exports” (2nd bullet point). You then argue that a lot of labour is quitting agriculture and state industries. Plus this labour needs jobs, therefore an undervalued currency and a healthy export sector is helpful in creating such jobs. …

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Monopoly Power in Banks

A key element of UK competition policy is that any merger which leads to the creation of a firm with more than 25% of market share will automatically get referred to the competition commission.  The competition commission will then evaluate whether the merger is in the public interest. However, the due to exceptional circumstances, the …

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Why is Chinese Currency Undervalued?

Many argue that on simple purchasing power parity, the Chinese currency the Renminbi is undervalued by approximately 30%. This is a source of friction in the US, with firms claiming they lose out to a cheap Chinese currency which can undercut US goods. The Chinese government wish to keep the currency undervalued because: A weaker …

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