Inflation

The rate at which the general level of prices for goods and services is rising, and, subsequently, purchasing power is falling. Central banks attempt to stop severe inflation, along with severe deflation, in an attempt to keep the excessive growth of prices to a minimum. Inflation refers to a rise in prices that causes the purchasing power of a nation to fall. Inflation is a normal economic development as long as the annual percentage remains low; once the percentage rises over a pre-determined level, it is considered an inflation crisis.

Causes of Inflation
There are many causes for inflation, depending on a number of factors. For example, inflation can happen when governments print an excess of money to deal with a crisis. As a result, prices end up rising at an extremely high speed to keep up with the currency surplus. This is called the demand-pull, in which prices are forced upwards because of a high demand .Another common cause of inflation is a rise in production costs, which leads to an increase in the price of the final product. For example, if raw materials increase in price, this leads to the cost of production increasing, which in turn leads to the company increasing prices to maintain steady profits. Rising labor costs can also lead to inflation. As workers demand wage increases, companies usually chose to pass on those costs to their customers.Inflation can also be caused by international lending and national debts. As nations borrow money, they have to deal with interests, which in the end cause prices to rise as a way of keeping up with their debts. A deep drop of the exchange rate can also result in inflation, as governments will have to deal with differences in the import/export level

Types of Inflation

Demand-pull inflation: Inflation caused by increases in aggregate demand due to increased private and government spending, etc. Demandinflation is constructive to a faster rate of economic growth since the excess demand and favourable market conditions will stimulate investment and expansion. The failing value of money, however, may encourage spending rather than saving and so reduce the funds available for investment. Cost-push inflation: Presently termed "supply shock inflation," caused by drops in aggregate supply due to increased prices of inputs, for example. Take for instance a sudden decrease in the supply of oil, which would increase oil prices. Producers for whom oil is a part of their costs could then pass this on to consumers in the form of increased prices. Built-in inflation: Induced by adaptive expectations, often linked to the "price/wage spiral" because it involves workers trying to keep their wages up (gross wages have to increase above the CPI rate to net to CPI after-tax) with prices and then employers passing higher costs on to consumers as higher prices as part of a "vicious circle." Built-in inflation reflects events in the past, and so might be seen as hangover inflation .

The Formula for Calculating Inflation

The formula for calculating the Inflation Rate using the Consumer Price Index is relatively simple. Every month the Bureau of Labor Statistics (BLS) surveys prices and generates the current Consumer Price Index (CPI). Let us assume for the sake of simplicity that the index consists of one item and that one item cost $1.00 in 1984. The BLS published the index in 1984 at 100. If today that same item costs $1.85 the index would stand at 185.0 By looking at the above example, common sense would tell us that the index increased (it went from 100 to 185.To calculate the change we would take the second number (185) and

subtract the first number (100). The result would be 85. So we know that since 1984 prices increased (Inflated) by 85 points.What good does knowing that it moved 85 do? Not much. We still need a method of comparison.Since we know the increase in the Consumer Price Index we still need to compare it to something, so we compare it to the price it started at (100). We do that by dividing the increase by the first price or 85/100. the result is (.85). This number is still not very useful so we convert it into a percent. To do that we multiply by 100 and add a % symbol. So the result is an 85% increase in prices since 1984. That is interesting but (other than being the date of George Orwell's famous novel) to most people today 1984 is not particularly significant. calculating a specific Inflation Rate Normally, we want to know how much prices have increased since last year, or since we bought our house, or perhaps how much prices will increase by the time we retire Fortunately, The method of calculating Inflation is the same, no matter what time period we desire. We just substitute a different value for the first one. So if we want to know how much prices have increased over the last 12 months (the commonly published inflation rate number) we would subtract last year's index from the current index and divide by last year's number and multiply the result by 100 and add a % sign. The formula for calculating the Inflation Rate looks like this: ((B - A)/A)*100 So if exactly one year ago the Consumer Price Index was 178 and today the CPI is 185, then the calculations would look like this: ((185-178)/178)*100 or (7/178)*100 or 0.0393*100 which equals 3.93% inflation over the sample year. .

What happens if prices Go down? If prices go down and we experienced Price Deflation then "A" would be larger than "B" and we would end up with a negative number. So if last year the Consumer Price Index (CPI) was 189 and this year the CPI is 185 then the formula would look like this: ((185-189)/189)*100 or (-4/189)*100 or -0.021*100 which equals negative 2.11% inflation over the sample year. Of course negative inflation is deflation. Inflation rate: If P0 is the current average price level and P 1 is the price level a year ago, the rate of inflation during the year might be measured as follows:

After the year the purchasing power of a unit of money is multiplied by a factor 1 / ( 1 + inflation rate ). There are other ways of defining the inflation rate, such as logP0 logP 1., again stated as a percentage. In this case after the year the purchasing power of a unit of money is multiplied by a factor e inflation rate. There are two general methods for calculating inflation rates - one is to use a base period, the other is to use "chained" measurements. Chained measurements adjust not only the prices, but the contents of the market basket involved, with each price period. More common, however, is the base period reference. This can be seen from inflation reports from the "relative weight" assigned to each component, and by looking at the technical notes to see what each item in an inflation basket represents and how it is calculated.

] Business process reengineering Business process reengineering (BPR) is the main way in which organizations become more efficient and modernize. Business process reengineering transforms an organization in ways that directly affect performance. The impact of BPR on organizational performance The two cornerstones of any organization are the people and the processes. If individuals are motivated and working hard, yet the business processes are cumbersome and non-essential activities remain, organizational performance will be poor. Business Process Reengineering is the key to transforming how people work. What appear to be minor changes in processes can have dramatic effects on cash flow, service delivery and customer satisfaction. Even the act of documenting business processes alone will typically improve organizational efficiency by 10%. How to implement a BPR project The best way to map and improve the organization's procedures is to take a top down approach, and not undertake a project in isolation. That means:

Starting with mission statements that define the purpose of the organization and describe what sets it apart from others in its sector or industry. Producing vision statements which define where the organization is going, to provide a clear picture of the desired future position. Build these into a clear business strategy thereby deriving the project objectives. Defining behaviours that will enable the organization to achieve its' aims. Producing key performance measures to track progress. Relating efficiency improvements to the culture of the organization Identifying initiatives that will improve performance.

Once these building blocks are in place, the BPR exercise can begin. Tools to support BPR When a BPR project is undertaken across the organization, it can require managing a massive amount of information about the processes, data and systems. If you don't have an excellent tool to support BPR, the management of this information can become an impossible task. The use of a good BPR/documentation tool is vital in any BPR project.

The types of attributes you should look for in BPR software are:

Graphical interface for fast documentation "Object oriented" technology, so that changes to data (eg: job titles) only need to be made in one place, and the change automatically appears throughout all the organization's procedures and documentation.

Drag and drop facility so you can easily relate organizational and data objects to each step in the process Customizable meta data fields, so that you can include information relating to your industry, business sector or organization in your documentation Analysis, such as swim-lanes to show visually how responsibilities in a process are transferred between different roles, or where data items or computer applications are used.

Support for Value Stream mapping. CRUD or RACI reports, to provide evidence for process improvement. The ability to assess the processes against agreed international standards Simulation software to support 'what-if' analyses during the design phase of the project to develop LEAN processes The production of word documents or web site versions of the procedures at the touch of a single button, so that the information can be easily maintained and updated.