Inflation- an increase in the general level of prices for goods and services. With inflation, for the same amount of money after some time it will be possible to buy fewer goods and services than before. In this case, it is said that the purchasing power of money has decreased over the past time, money has lost part of its real value.
The opposite process is deflation - a decrease in the general price level (negative growth). AT modern economy It is rare and short-term, usually seasonal. For example, grain prices tend to decline immediately after harvest.
The term "inflation" appeared in the second half of the 19th century, having migrated from the arsenal of medicine. Literally translated from Latin, inflation means "bloating", i.e., the overflow of channels of circulation with excess paper money, not supported by a corresponding increase in the mass of commodities.
Inflation is a phenomenon of violation of monetary circulation and is associated with various monetary factors: the issue of signs of value, the volume money supply, the speed of money turnover, the amount of mutually repaying payments.
Obviously, inflation is a process due to the interaction of two factors - pricing and money. On the one hand, the depreciation of money is a process associated with rising prices, on the other hand, a fall in the purchasing power of money can also occur under the influence of changes in their quantity in circulation.
Causes of inflation:
Growth public spending for the financing of which the state resorts to money issue increasing the money supply beyond the needs of commodity circulation. It is most pronounced in war and crisis periods.
Excessive expansion of the money supply through mass lending;
The monopoly of large firms on the determination of prices and their own production costs, especially in the primary industries;
Union monopoly that limits opportunities market mechanism determine the level of wages acceptable to the economy;
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.
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 the equilibrium between the commodity and money supply with more high level prices. Average level inflation across EU countries last years 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. Predominates in developing countries;
Hyperinflation (prices are growing at an astronomical rate, reaching several thousand and even tens of thousands of percent per year). It arises due to the fact that the government issues an excess amount of banknotes to cover the budget deficit. Paralyzes the economic mechanism, with it there is a transition to barter exchange. Usually occurs during war or crisis periods.
demand inflation;
supply inflation;
With demand inflation, the imbalance between aggregate demand and supply arises from the side of aggregate demand. This type of inflation occurs when the purchasing power of the population does not have commodity coverage.
The mechanism of unwinding inflationary demand is characterized by the fact that the money supply first increases, and then aggregate demand.
Supply inflation occurs as a result of a reduction in aggregate supply due to an increase in the cost of production by 1 unit.
The increase in costs is due to the monopoly of enterprises, the actions of trade unions, the use of imported resources, administrative regulation, etc. At the same time, the mechanism of inflation unwinding is characterized by the fact that initially, because of the growth of costs, prices increase, and then the money supply expands.
Inflation can exist in two forms:
1) open - i.e. explicit price increase;
2) hidden or suppressed - its manifestations are that the rise in prices is due to a shortage of goods, and the rise in price is hidden only on the black market.
3. Patterns of the inflationary processThere are three stages in the development of inflation.1.1 . At the first stage of inflation, the rate of depreciation of money lags behind the rate of growth of the money supply in circulation. This is explained primarily by a slight increase in the circulation needs for money as a result of the artificial revival of production under the conditions of the war boom, the contraction of credit and the slowdown in the velocity of money circulation. At this stage of the inflationary process, the share premium of the state grows, a significant part of which is appropriated by the monopolies. It is characteristic mainly of the inflationary situation during the years of the pre-war militarization of the economy and during the war until the growth of unproductive state spending leads to a breakdown in the economy, a decrease in the growth rate, and subsequently to a reduction in the volume of production. The rate of depreciation of money lagging behind the rate of growth of the money supply can persist throughout the war if the state introduces strict regulation (“freezing” of prices and rationed distribution of products).
1.2 . At the second stage of inflation, the rate of depreciation of money overtakes the rate of growth of the money supply in circulation. The reason for this is the growing disproportion between the volume of money circulation and the real needs of circulation in money. A similar ratio is observed in a period when inflation is not able to stimulate the growth of production and trade or prevent the reduction of their volume, and the mechanism of state price regulation is absent or operates inefficiently. The depreciation of money causes distrust of them. The flight from money begins, that is, the desire to turn them into real values - goods as soon as possible. An increase in the velocity of money further reduces the need for circulation in money and, along with an increase in the money supply, increases inflation. At this stage, the state may completely lose control over inflation, and then the rate of emission is controlled by a spontaneous mechanism of depreciation of money. With high rates of price growth, “money hunger” sets in, as the state does not have time to print money; various surrogates appear.
1.3. The third stage of inflation is characterized by an intermittent relationship between the rate of issue and the rate of depreciation of money. Similar phenomena are observed during the peaceful development of the economy under the conditions of the general crisis of capitalism, especially at its present stage, when inflation has become the object of state-monopoly regulation. The rate of the average annual depreciation of money either outpaces the growth rate of the money supply in circulation, or lags behind. The third stage of the inflationary process is characteristic of the so-called creeping inflation.
Inflation- this is an increase in the general level of prices for goods, works and services (of the country's population and enterprises) for a long time.
With inflation, for the same amount of money, after a certain period of time, it will be possible to buy fewer goods, works and services than before.
In this case, they say that over the past time the purchasing power of money has decreased, money has depreciated, that is, money has lost part of its real value.
Inflation should be distinguished from a price hike, as it is a long, steady process.
Inflation does not mean an increase in all prices in the economy, because prices for individual goods, works and services can rise, fall or remain unchanged.
It is important that the general price level changes.
In practice, the following causes of inflation are distinguished:
1. Excessive expansion of the money supply through mass lending. Wherein cash for lending, they are not taken from savings, but are issued from the issue of unsecured currency. This is most noticeable during periods economic crisis or military action.
2. The growth of public spending, to finance which the state resorts to money emission, increasing the money supply (inclusion " printing press”) in excess of the needs of commodity turnover.
3. A reduction in the real volume of national production, which, with a more or less stable level of money supply, leads to an increase in prices, since a smaller volume of goods, works and services corresponds to the same amount of money, that is, per unit of goods produced, work performed, services rendered more money.
4. The monopoly of large companies on setting prices and determining their own production costs, especially in the resource-extracting industries of production and in the raw materials industries.
5. The monopoly of trade unions in determining the level of wages.
6. Growth of taxes, duties, excises with a more or less stable level of money supply.
7. Depreciation national currency(especially when in large numbers imports into the country).
The most common method of measuring inflation is the index. consumer prices, which is calculated in relation to the base period.
You can also measure inflation by calculating:
prices of manufacturing companies;
deflator of gross domestic product.
Note that consumer price indices are used as correction factors, for example, when calculating the amount of compensation, damage, and the like.
The general price index formula is as follows:
Price index = Value of the market basket in the current year / Value of the market basket in the base year.
Depending on the rate (rate of flow) of inflation, the following types of inflation are distinguished:
Creeping (moderate) inflation. With such inflation, prices rise by no more than 10% per year. The value of money is preserved, contracts are signed at nominal prices. Such inflation is considered the best, since inflation occurs due to the renewal of the assortment and allows prices to be adjusted due to changes in the conditions of supply and demand. This inflation is manageable because it can be regulated.
Galloping (jump-like) inflation. With such inflation, prices rise from 10-20 to 50-200% per year. In the contracts concluded, enterprises set the cost of their goods, products, works and services, taking into account price increases. The population begins to actively invest their savings in material values. Such inflation is difficult to control. The country often carries out monetary reforms. These changes indicate the presence of an economic crisis.
Hyperinflation. With such inflation, prices rise by more than 50% per month and more than 100% per year. The well-being of the population is deteriorating sharply. Economic relations between enterprises are being destroyed. Such inflation is uncontrollable and requires the adoption of emergency measures by the state. As a result of hyperinflation, production stops, the sale of goods, products, works and services is reduced, the real volume of national production decreases, unemployment rises, existing enterprises are closed, there are companies.
Depending on the nature of the manifestation, the following types of inflation are distinguished:
open inflation. With such inflation, the price level rises in conditions of free prices that are not regulated by the state.
Suppressed (closed) inflation. With such inflation, there is an increase in the commodity deficit, in conditions of strict price control by the state.
Depending on the causes of inflation, there are:
Demand inflation;
cost inflation;
structural inflation.
Other types of inflation include:
balanced inflation. With such inflation, the prices of different goods change to the same extent and simultaneously.
unbalanced inflation. With such inflation, commodity prices rise unevenly.
Expected inflation. Such inflation allows the state to take protective measures.
unexpected inflation.
imported inflation. Such inflation develops under the influence of external factors. Imported inflation is caused by excessive inflow into the country foreign exchange and higher import prices;
exported inflation. Such inflation is transferred from one country to another through the mechanism of international economic relations affecting money turnover, effective demand and prices.
Inflation can have both positive and negative impact on socio-economic processes.
The positive effects of inflation include the following points:
1. Inflation has a stimulating effect on trade, so the expectation of price increases in the future encourages consumers to purchase goods today.
2. Inflation serves as a factor of "natural selection" of economic evolution. Under the conditions of inflationary development of the economy, weak enterprises are ruined. Thus, only the strongest and most efficient enterprises remain in the national economy. At the same time, inflation can contribute to the growth of the competitiveness of domestic goods.
3. In an economy with part-time employment, moderate inflation, slightly reducing the real incomes of the population, forces them to work harder and better.
4. Inflation redistributes income between lenders and borrowers, with the borrowers benefiting. Having received a long-term loan at a fixed interest rate, the borrower will have to return only part of it, since the real purchasing power of money will decrease due to inflation.
5. With inflation, debtors, buyers, importers, workers in the real sector benefit.
The negative effects of inflation include the following points:
Inflation: details for an accountant
The devaluation of her savings caused by inflation and as another reason... the depreciation of the currency Russian Federation and inflation. At the same time, the ECtHR ... on compensation for losses resulting from inflation "This conclusion of the ECtHR, was subject to ... significantly exceeded (even taking into account inflation) the amount by which the applicant ... of the Convention - devaluation of savings caused by inflation, then from the Decree can be done... by force the obligation to compensate for the damage caused by inflation. The ECHR saw no reason to retreat ...
Years by 9% (having overtaken the official inflation, which amounted to 4.3%) - until ... an increase in value within inflation or at the "inflation plus" level also does not...
changes). Secondly, the inflation rate will increase, we recall that at present ..., speaking of the fact that the inflation rate will temporarily exceed the figures of 2018 ... . By the end of 2018, inflation approaches 4% under the influence of... (transition from deflation to moderate inflation), the impact on prices of the weakening ruble...
Inflation plays a major role in benefit increases. From rising prices for the previous... Government of the Russian Federation. Inflation is currently expected at 3.2 ... decided that the size of the final general annual inflation for the entire past year 2017 ...
It is then adjusted for inflation. Until 2015, this approach... the date is not only reduced due to inflation, but also increases. This is due ... estimates - its decrease as a result of inflation and a simultaneous increase due to ... the cost of K rs to reduce by inflation for the period from the current date ...
Inflation- this is price increase for goods and services directly related to purchasing power society (that is, over time, the same amount of money can buy less and less goods). Inflation should not be confused with a term such as " price jump”because it has a longer and more stable nature, as well as its influence is even across all groups of goods and services, although some of them may not be subject to inflation.
The opposite term is deflation, that is, a price decrease is a rather rare phenomenon in the modern economy, most often of a seasonal nature: for example, a gradual decrease in the price of greens, radishes, cucumbers by mid-summer, and then prices rise again.
In economics, there are seven main causes of inflation:
Three more types of inflation depend on the rate of its growth:
Anti-inflation policy is a set of government measures to regulate the economy by suppressing inflation.
Types of anti-inflationary policy:
When studying the concepts of inflation and purchasing power, one can mention such an interesting concept as the Big Mac Index - a way to determine purchasing power. This standard sandwich from McDonald's acts as an indicator of the real exchange rate national currency, purchasing power, as well as the security of the population, because its price in different countries unequal and directly depends on what was listed. According to 2015 data, a Big Mac costs $1.2 in Ukraine, $1.36 in Russia, $4.8 in the US, and $7.54 in Switzerland.
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 speeds up the payment turnover, reduces the cost of loans, promotes the intensification of investment activity and the growth of 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 state control. It is especially high in countries where there are no well-established mechanisms for regulating economic activity, and the level of production is low and is 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 the 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 ability of the market mechanism to determine an 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 volume 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) decline real income(especially in 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 – occurs when the government finances a deficit state budget 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 by 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 state policy can be formed under the influence of either Keynesian or neoclassical theoretical views.
Keynesian approach: active budgetary 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 at the end of the 19th-beginning of the 20th century.
Replacing banknotes(banknotes and coins) that have become 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, full 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.
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 money circulation under control. 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. Several indicators are used to measure open inflation: the Paasche index, the consumer price inflation index, 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
