Creeping inflation is determined by insignificant rates of price growth - less than 10% per year. The second name for this type of inflation is regulated, because. the government, using a variety of tools, can influence market conditions, keeps under control money turnover. In such a situation, money retains its value because purchasing power remains relatively stable. Creeping inflation usually does not have a serious negative impact on the economy.
Galloping inflation is characterized by relatively high rates of depreciation of money. The price growth index for this type of inflation is 20-200% per year. Because of this, there is an increase in demand, and therefore acts as an additional factor in rising prices.
Hyperinflation is characterized by astronomical rates of price growth, sometimes reaching several thousand percent a year. Under such conditions, the gap between the price increase and the increase wages become catastrophic. The well-being of even the most affluent segments of the population is deteriorating. Hyperinflation indicates that the economy is close to collapse, about the uncontrollability of economic processes.
Stagflation characterizes the development of inflationary processes in the context of an economic downturn and a depressed state of the economy. Stagflation is a new phenomenon associated with cyclical development national economy and due to new conditions for the reproduction of capital and structural changes in the national economy.
According to the degree of equilibrium of price growth, balanced and unbalanced inflation are distinguished. With balanced inflation, the dynamics of prices in various sectors relative to each other is unchanged, and with unbalanced inflation, the growth rates of prices in various sectors are constantly changing in various proportions.
In terms of predictability, inflation is classified into expected and unexpected. Unexpected or predictable factors significantly influence the consequences of inflation.
There are two types of inflation:
open inflation;
suppressed inflation.
inflation is an increase in the prices of goods and factors of production. But inflation does not mean an increase in prices in equal proportion and simultaneously for all goods. That is why price indices are used to measure inflation or determine its absence. To measure open inflation, several indicators are used: Paasche index, inflation index consumer prices and the gross domestic product (GDP) deflator.
General index prices
The Paasche index is calculated by the formula:
where h is the price growth index for one year; , - prices for the same products, but expressed respectively in the prices of the base and current years; - the volume of production of this product in the current year.
The following formula is used to measure the inflation rate:
where - the growth rate of the average level of consumer prices; CPI i is the consumer price index of the year under study (i=1, 2, …, n); CPI 0 is the consumer price index in the base year.
The consumer price index is calculated by comparing the cost of a certain set (basket) of goods in the year under study with the cost of the same basket of goods in the base year:
where CPI is the consumer price index; W 0 is the cost of a basket of consumer goods in the base year; W i is the cost of a basket of consumer goods in the year under study.
Having considered the essence of inflation, its types and measurement indicators, we will analyze the causes that cause inflationary processes. Among them, first of all, we should mention the lack of a well-thought-out long-term monetary policy, designed to keep in a balanced state the commodity and money markets and allowing for short-term anti-inflationary measures. Consequences of inflation
Declining standard of living
Devaluation of savings
Increasing taxation
There are the following types of inflation:
According to the degree of manifestation:
Creeping inflation- inflation, manifested in a long-term gradual rise in prices. Creeping inflation is characterized by relatively low rates of price growth, up to about 10% or more. more percent in year. This kind of inflation is common in most developed market economies and does not appear to be unusual. Data for the 70s, 80s and early 90s. in the US, Japan and Western European countries, they are just talking about the presence of creeping inflation. Average level inflation in the countries of the European Community amounted to last years about 3-3.5%;
Galloping inflation- this is inflation in the form of an abrupt increase in prices (price growth by 20-2000% per year). Such high rates in the 80s. were observed, for example, in many countries of Latin America, some countries of South Asia. Estimated Central Bank Russia, the consumer price index in our country in 1992 rose to 2200%. Consumer prices outpaced growth cash income population. Below are the consumer price indices and the growth rates of nominal cash income in the CIS countries (1992 to 1991, in number of times). Galloping inflation is understood as a phenomenon in the form of an abrupt increase in prices, which, as a rule, is caused by sharp changes in the volume of the money supply or changes in prices under the influence of external factors. A sharp change in the volume of money supply can occur as a result of emission caused by the emergence of a budget deficit. Emission is the release into circulation of additionally printed and minted banknotes - banknotes and coins. A budget deficit is an excess public spending over government revenues derived from the collection of taxes and non-tax payments. The excess of government revenue over spending is called a surplus.
Hyperinflation- this is inflation with a very high (both uniform and uneven) rate of price growth, usually above 50% per month. It is usually caused by the same factors that were mentioned above. Hyperinflation is a crisis phenomenon, and slightly different methods are used to eliminate it than with ordinary inflation.
During hyperinflation, prices rise astronomically, the discrepancy between prices and wages becomes catastrophic, the well-being of even the most affluent strata of society is destroyed, the largest enterprises become unprofitable and unprofitable (the IMF now takes a 50% rise in prices per month for hyperinflation). Running a successful business in a hyperinflationary environment is next to impossible. It can only be a survival strategy. The recipe for survival is as follows: autonomy and self-sufficiency, simplification of production, reduction of external relations, naturalization of the basic elements of intra-company management. Increasingly, industrial enterprises have to start their own greenhouses, pig farms and even mini-power plants, and increase the emphasis on barter and clearing operations.
by way of occurrence:
Administrative inflation- inflation generated by "administratively" controlled prices;
cost inflation- inflation, which is manifested in the growth of prices for resources, factors of production, as a result of which the costs of production and distribution grow, and with them the prices for manufactured products. The reasons for rising prices for resources are, as a rule, changes in world prices for resources and depreciation of the domestic currency. In turn, the increase in costs for a particular product affects the change in prices for other goods, since in order to purchase goods that have risen in price, it is necessary to raise the price of your goods.
Demand inflation- inflation, manifested in the rise in prices caused by an increase in the income of the population, i.e. the growth of effective demand (when the total cash income of the population and enterprises increase faster than the growth of the real volume of all goods and services). As a rule, this type of inflation is most often observed at full employment. At the same time, it does not matter, due to which the demand increases - due to an increase in government spending (for example, on military and social orders) or due to an increase in demand for goods and services on the part of entrepreneurs.
Demand-pull inflation is caused by:
The militarization of the economy and the growth of military spending;
budget deficit and rising public debt.
Supply inflation- inflation, meaning a rise in prices that was provoked by a significant increase in production costs in an environment where productive resources were underutilized, for example, in a situation where enterprises carry out a major modernization of their assets.
Fixed assets, or funds, are long-term means of production that are involved in many production cycles and have long depreciation periods, which is understood as the process of gradually transferring the value of worn-out means of labor to the product produced with their help.
Imported inflation- inflation caused by the impact of external factors, such as excessive inflow of foreign currency into the country and an increase in import prices;
Induced inflation- inflation caused by any other economic factors;
credit inflation- inflation caused by excessive credit expansion;
Unforeseen inflation- the level of inflation, which turned out to be higher than expected for a certain period;
open inflation- inflation due to rising prices of consumer goods and production resources; characterized general increase prices.
One of the first mechanisms of open inflation can be called adaptive inflation expectations. They are a psychological phenomenon, an inclination, a way of thinking that determines the behavior of the subjects of economic life. The most important factor in the formation of inflationary expectations is the rate of price growth, averaged over a certain period of time preceding a given moment. If high inflation rates are observed during this period, then business entities include these rates in their plans for the future: consumers increase purchases of those goods, the prices of which tend to grow the most, as a result of which current demand is pumped up, a repeated rise in price of goods and services is provoked; Producers and traders charge ever higher prices for their products, leading to further price increases and higher inflationary expectations. There is a self-sustaining process of accelerated price growth under the influence of inflationary expectations.
Suppressed (hidden) inflation- inflation resulting from a shortage of goods, accompanied by the desire of government agencies to keep prices at the same level. In this situation, there is a "washout" of goods on open markets and their flow to the shadow, "black" markets, where prices are rising; Hidden inflation is characteristic of centralized economies, where the so-called firm state prices are quite stable and "officially" hardly grow.
Expected inflation- the expected level of inflation in the future period due to the factors of the current period.
Can be predicted and predicted in advance, with a reasonable degree of reliability; unexpected - occurs spontaneously, sporadically, the forecast is impossible. The factor of expectability, predictability, sheds new light on the question of the impact of inflation on business strategy, namely: if all firms and the entire population know for sure that next year prices will increase, say 100 times, then in an ideal free market there is a whole year for advance adaptation to the predicted price jump. All enterprises and the population will also increase the price of their goods (machines, equipment, services, labor, etc.) by 100 times. Thus, no one will suffer significantly even from hyperinflation, and in the event of unpredictability, unexpected price growth even by 10% (moderate inflation, by our definition), a significant decrease in the profitability of the respective enterprises may occur.
Inflation (from the Italian "inflatio", which means "swelling") is a steady upward trend in the general price level. Two concepts play an important role in this definition:
If we talk about the types of inflation, then they distinguish: moderate, galloping, high, hypertrophied forms.
Depending on the criteria, several groups of varieties of inflation can be distinguished.
For example, if you choose the inflation rate as a criterion, then the list will be as follows:
If we choose the form of inflation manifestation as criteria, then we can distinguish such varieties as:
Open inflation is one of the varieties of inflation, which manifests itself in a general rise in prices. The open form does not introduce an imbalance in market mechanisms: the rise in prices in some markets is offset by their decline in others. This can be explained by the continued operation of market mechanisms that send price signals to the economy, stimulate the expansion of supply and production, and encourage investment.
Open inflation is a completely natural phenomenon in the world economy, which contributes to the development of markets, so there is no need to fight open inflation, but you need to keep it under control, since an uncontrolled rise in the price level can weaken the economy.
The consequences of inflation are manifested both in the economic and in the social sphere.
There are two obvious causes of inflation:
Hidden inflation is one of the varieties of inflation in which prices and incomes of the population remain unchanged, but there is an increase in the money supply or production costs. In other words, it is the gap between government-set and market prices.
Hidden inflation is a consequence of the tight control of the markets by the state. If the state sees that a rise in prices can lead to catastrophic consequences, it suppresses it: but in this case it is about eliminating the consequences, not the causes, and often ends with a shortage of goods: it is simply unprofitable for producers to produce, sell goods at prices below their adequate cost .
In most countries of the world, commodity inflation is the most important macroeconomic indicator that determines investment and consumer demand, interest rates, exchange rates, many social aspects, including the quality and cost of living.
The ability of the state to keep inflation at an optimal level allows us to speak about the efficiency of the economy in the country, about enough high degree development of self-regulation mechanisms, about the dynamism and sustainability of the economic system. Inflation at the optimal level (up to 10% per year) is useful for the country's economy, as it stimulates commodity-money relations, the production of various goods, and so on.
Economic inflation is always accompanied by a rise in prices, but a rise in prices is not always a form of inflation. Prices can rise due to crop failures, cyclical fluctuations, an energy crisis, and so on.
The reasons for the inflationary rise in prices can be called monopolistic price races, covering the deficit state budget with the help of additional issue of money, inflationary expectations and so on.
In the world economy, two parameters are traditionally used to describe the level of inflation: the deflator of the gross national product and the consumer price index.
Inflation is an increase in the prices of goods and services. Inflation depreciates of money decreasing the purchasing power of the population. The process that is the opposite of inflation, that is, the reduction in prices, is called deflation.
Types of inflation
In the economic literature, there are two types of inflation - supply and demand.
Demand-pull inflation occurs when the money incomes of the population and firms grow faster than the real volume of goods and services. Such a situation on the market can be caused, firstly, by the state - through unpredictable military and social orders, and secondly, by entrepreneurs who artificially increase the demand for goods.
Under such conditions, the economy will be close to full employment and capacity utilization. Increasing incomes of the population, firms and the state contribute to an increase in aggregate demand, and consequently, an increase in prices.
Supply inflation is an increase in prices due to an increase in production costs in conditions of underproductive resources, and consequently, a reduction in aggregate supply. The main reasons for the increase in expenses are the increase in nominal wages and prices for raw materials and electronic carriers.
Types of inflation
Uneven growth of prices by commodity groups gives rise to inequality of profit rates, stimulates the outflow of resources from one sector of the economy to another (in Russia, from industry and agriculture to trade and the financial and banking sector).
Types of inflation:
Demand-pull inflation - is generated by an excess of aggregate demand compared to the real volume of production (deficit of goods).
Supply inflation (costs) - the rise in prices is caused by an increase in production costs in the context of underutilized production resources. An increase in unit costs reduces the volume of products offered by producers at the current price level.
Balanced inflation - the prices of various goods remain unchanged relative to each other.
Unbalanced inflation - the prices of various goods change in relation to each other in different proportions.
Forecast inflation is inflation that is factored into the expectations and behavior of economic agents.
Unpredictable inflation - becomes a surprise for the population, as the actual growth rate of the price level exceeds the expected one.
Adapted consumer expectations - changing consumer psychology. Often arises from the dissemination of information about future potential inflation. The increased demand for goods allows entrepreneurs to raise the prices of these goods.
The suppression of inflation is characterized by external price stability with active government intervention. An administrative prohibition to raise prices usually leads to a growing shortage of those goods for which prices would have to rise without government intervention, not only because of the initial increased demand, but also as a result of a decrease in supply. State subsidization of the difference in prices for the producer or consumer does not reduce supply, but additionally stimulates demand.
Depending on the growth rate, there are:
creeping(moderate) inflation(Price growth less than 10% per year). Western economists consider it as an element of the normal development of the economy, since, in their opinion, insignificant inflation (accompanied by a corresponding increase in the money supply) is capable, under certain conditions, of stimulating the development of production and the modernization of its structure. The growth of the money supply accelerates the payment turnover, reduces the cost of loans, contributes to the activation investment activity and growth in production. The growth of production, in turn, leads to the restoration of equilibrium between the commodity and money supply at a higher price level. Average inflation rate by country EU in recent years has amounted to 3-3.5%. At the same time, there is always the danger that creeping inflation will get out of control. state control. It is especially high in countries where there are no well-established regulatory mechanisms economic activity, and the level of production is low and characterized by the presence of structural imbalances;
Galloping inflation (annual price increase from 10 to 50%). Dangerous for the economy, requires urgent anti-inflationary measures. Predominant in developing countries;
Hyperinflation
(prices are growing at an astronomical pace, reaching several thousand and even tens of thousands of percent per year). It arises due to the fact that to cover budget deficit The government issues an excess amount of banknotes. Paralyzes the economic mechanism, with it there is a transition to barter exchange. Usually occurs during war or crisis periods.
Also use the expression chronic inflation for long-term inflation. stagflation called the situation when inflation is accompanied by a decline in production (stagnation).
Causes of inflation
In economics, the following causes of inflation are distinguished:
Growth in public spending, for which the state resorts to monetary funds emissions, increasing money supply beyond the needs of commodity circulation. It is most pronounced in war and crisis periods.
Above-planned expansion of the money supply due to mass lending (see. bank multiplier);
Monopoly large firms to determine prices and own production costs, especially in the primary industries;
Monopoly trade unions which limits the possibilities market mechanism determine the acceptable level for the economy wages;
A reduction in the real volume of national production, which, with a stable level of money supply, leads to an increase in prices, since a smaller amount of goods and services corresponds to the same amount of money.
In the course of particularly strong inflation, such as in Russia during civil war, or Germany 1920s money circulation may give way altogether barter.
For modern economies in which the role of money is played by obligations who do not have their own cost (fiat money), slight inflation is considered the norm and is usually at the level of a few percent per year. Inflation tends to pick up somewhat at the end of the year, when both household consumption of goods and corporate spending rise.
Consequences of inflation:
1) decrease in real incomes (especially for people with a fixed income);
2) depreciation of deposits;
3) inflation harms creditors;
4) inflation causes nervousness in people, social tension in society (for example, inflation in Germany in the 1920s was a factor in Hitler's coming to power);
5) inflation complicates planning even in the short term, which negatively affects production volumes;
6) inflation disrupts the inflationary process, and hyperinflation destroys it, since it devalues savings, it is impossible to purchase new equipment, expand production.
Socio-economic consequences of inflation:
1 Redistributive costs of inflation.
Inflation enriches debtors, loses creditors. Incomes are redistributed in favor of :
a) monopoly enterprises;
b) financial structures;
c) shadow economy;
d) individuals, when, for example, managers set their own salaries.
Losing income:
a) people with fixed incomes;
b) creditors;
c) people who have deposits in banks.
2 inflation tax – arises when the state finances the state budget deficit by increasing the money supply:
IT = R *С+D(П-i),
where P is the inflation rate;
C - cash;
D - deposits (deposits in banks);
i - interest rate on deposits.
3 Decrease in real incomes.
It can be represented as the difference between nominal incomes and price increases:
”RD = DN - ”R.
Another indicator that is used to measure the change in real incomes is the real income index:
IRD \u003d IDN / Icen,
where IRD is the real income index;
IDN – nominal income index;
Іtsen - price index.
4 Uncertainty created by inflation in relation to future prices, since the future value of money is unpredictable.
5 Inflation breeds social conflicts; leads to the bankruptcy of banks, enterprises, to strikes. Landmarks in economic activity are lost; difficult to accumulate; money ceases to perform its functions.
6 inflation expectations – it is the prevailing societal idea of what the future rate of inflation will be.
Inflation benefits those who manage to increase income at a faster rate:
1 Commercial banks, currency dealers, trading companies. The rise in prices and incomes of these structures is greater than the rise in costs.
2 Borrowers – can return money with less purchasing power to the lender.
3 A government that borrows money.
Anti-inflation policy is a set of measures of state regulation aimed at controlling the level of inflation.
There are two ways to eliminate inflation: a) radical; b) adaptive (adjustment to inflation).
Anti-inflationary public policy can be formed under the influence of either Keynesian or neoclassical theoretical views.
Keynesian approach: active budget policy- change in public spending and taxes in order to influence effective demand. With excess demand, the government limits its spending and raises taxes. As a result, demand decreases and inflation rates decrease. But at the same time, the growth of production is limited, which causes an increase in unemployment. Rising unemployment causes a reduction in demand and now it is necessary to stimulate the purchasing power of entrepreneurs and consumers. If demand is insufficient, fiscal policy works in the opposite direction: public investment in production increases and taxes decrease. All these measures increase demand, but, at the same time, cause inflation to rise. With this approach, the government is forced to constantly balance between inflation and unemployment.
Neoclassical approach prescribes monetary regulation, which indirectly and flexibly affects the economic situation. The Central Bank of the country is implementing deflationary measures, limiting the amount of money in circulation.
Monetary reform- changes carried out by the state in the field of monetary circulation, as a rule, aimed at strengthening the monetary system.
There are the following types of monetary reform:
The transition from one monetary equivalent to another- for example, the transition from copper to silver money in Ancient Rome, or the transition from bimetallism to monometallism in most European countries in the late 19th and early 20th centuries.
Replacing banknotes(banknotes and coins) that became defective (and / or depreciated coins) a full-fledged coin or non-changeable change (for example, in Great Britain in 1695 all old coins that had lost their original weight were seized to be re-minted into new, high-grade ones; Russia as a result reforms of 1839-1843 moved from paper money-banknotes to credit notes, exchangeable for silver);
Currency stabilization or partial measures to streamline monetary circulation through devaluation, denomination, revaluation, etc.;
The formation of a new monetary system - carried out during the period of collapse, the acquisition of independence by former colonies, the formation of states, etc.
Inflation- an increase in the general (average) level of prices in the economy.
Webmaster's note "a: if you are not an expert in the field of economics, read a chapter from my book in the presentation for schoolchildren" Inflation". In this presentation, the material was tested on my friends - lawyers and engineers. Moreover, due to the fact that the topic of inflation is not disclosed in an academic way, many of them shared the story with their friends.
See also the article in Ukrainian " inflation ".
When it comes to inflation, this does not mean that all prices must rise. Even during periods of high inflation, some prices may remain stable while others may fall. We are talking about the upward trend of a certain average price level.
There is another definition Inflation is the process of reducing the value of money, as a result of which the same amount of money can buy a smaller amount of goods and services after some time. In practice, this translates into higher prices.
It follows from this that the converse is also true:
Inflation- overflow of channels of circulation of the money supply in excess of the needs of trade, which causes depreciation monetary unit and rising prices.
From this point of view, a distinction is made between balanced inflation (the prices of various goods do not change relative to each other) and unbalanced inflation (the prices of various goods constantly change relative to each other).
Depending on the rate, creeping inflation differs (prices rise by less than 10% per year, the purchasing power of money is practically preserved, contracts are signed at nominal prices), galloping inflation (price growth occurs abruptly and rapidly - 20-200% per year, money materializes rapidly in goods, contracts are tied to price increases) and hyperinflation. There is also the phenomenon of stagflation - an inflationary decline in production.
Significant inflation (ten percent or more per year) indicates economic problems in the state.
From a source point of view, economists explain inflation in two ways: as demand-pull inflation, when an excess of money spending meets a limited supply of goods produced at full employment, and as supply-side inflation, in which price increases are associated with an increase in production costs at part-time employment. J. M. Keynes and his followers explained it by excessive demand at full employment, that is, from the demand side. Others - neoclassicists - looked for the reason in the growth of production costs or production costs, that is, on the supply side. The truth should be sought in the synthesis of two opposites, i.e., to explain inflation both from the side of demand and from the side of supply. Disproportions between supply and demand, the excess of income over consumer spending can be generated by a state budget deficit (government spending exceeds income); excessive investment (the volume of investments exceeds the possibilities of the economy); outstripping growth of wages in comparison with the growth of production and increase in labor productivity; arbitrary establishment of the state. prices that cause distortions in the size and structure of demand; other factors.
Depending on the growth rate, there are:
Stagflation is a situation where inflation is accompanied by a decline in production (stagnation).
The concept of demand-pull inflation suggests that if the economy is to achieve high levels of output and employment, then moderate inflation is necessary. Supporters of the concept of cost-driven inflation argue that inflation can be accompanied by a reduction in real national output and employment. In practice, however, it is difficult to distinguish between the two types of inflation.
There are known examples when, with the help of stimulating inflationary processes, the economy was revived. In Germany in 1933, a government road building and public works program helped revive industry and the economy. The exit from the Great Depression in the United States was also accompanied by an increase in government spending. (See Great Depression)
On the inflation rate a significant impact is exerted by the amount of money withdrawn from direct consumption by making long-term investments that do not provide for a quick return, the level of deposits in banks, the refinancing rate, and so on.
Also, the following reasons can affect the occurrence of inflation:
The most common measure of inflation is the consumer price index (Consumer price index, CPI), which is calculated in relation to the base period. As an example, you can see the consumer price inflation index in Ukraine for 1991-2008. (they are given in a separate article and correspond to official statistics)
But for various purposes, various indices for assessing the level of inflation are used, namely:
If the price level rises faster than nominal incomes in society (i.e., incomes expressed in money), then real incomes will decrease (real income is determined by the amount of goods and services that can be bought with the received nominal incomes). It follows that people who receive relatively fixed nominal incomes (for example, pensioners) suffer the most from inflation. People living on flexible incomes can benefit from inflation if their nominal incomes rise faster than prices in the economy.
Consequently, as a result of inflation in society, there is a redistribution of real incomes. Savers suffer from inflation, because as prices rise, the real value, or purchasing power, of savings set aside for a rainy day decreases. Inflation also redistributes income between debtors and creditors: it benefits the recipients of the loan, as they borrow money with greater purchasing power, and return the money depreciated by inflation to the creditor. Hence the significant increase in nominal interest rates in conditions of strong inflation and falling real interest rates. Finally, inflation leads to disorientation of economic agents due to the instability of market information.
In the course of particularly strong inflation, such as in Russia during the Civil War, or Germany in the 1920s. the circulation of money may give way altogether to barter in kind.
In the history of the world economy, there have been two cases of price spikes associated with a fall in the value of precious metals. After the discovery of America in European countries began to receive a lot of gold and especially silver from Mexico and Peru. In the 50 years since the beginning of the 16th century, silver production has increased more than 60 times. This caused an increase in commodity prices by a factor of 2.5-4 by the end of the century. After the development of Californian (and then Australian) gold mines began in the late 40s of the XIX century. At the same time, gold mining increased by more than 6 times, and prices by 25-50%. Inflation of this kind has been observed all over the world.
