What unites the concepts of open hidden moderate balanced. Open oval window. Terms of demand inflation
There are the following types of inflation.
1. By the nature of the manifestation (by the way of influencing prices):
- open;
- hidden.
open inflation develops in markets where free prices operate, develops freely and is not restrained by anyone.
Hidden inflation- this is such inflation, in which the state takes measures aimed at directly restraining the prices of goods and services.
2. Depending on the prevailing influence of factors (by causes):
- demand inflation;
- supply inflation.
Demand inflation is an imbalance between supply and demand on the demand side. It is characterized by the fact that the growth of demand at full utilization of resources and employment is not supported by an elastic expansion of supply. The causes of demand inflation are:
Excess emission of money supply;
Outstripping growth of aggregate effective demand (which is formed from the total cash expenditures of households, the state, entrepreneurs), its separation from the growth of SOP volumes.
Supply inflation is an increase in prices as a result of an increase in production costs or a decrease in aggregate supply. The reasons for the increase in costs may be an increase in prices for raw materials, energy carriers, wage increases, oligopolistic pricing policy, economic and financial policy states, etc.
3. In terms of price growth:
- moderate (creeping) inflation;
- galloping;
- hyperinflation.
moderate inflation- this is such inflation, in which the general increase in the price level does not exceed 5-10% per year.
Galloping inflation is inflation at which the annual rate of price growth reaches from 10 to 100%.
Hyperinflation- inflation, when prices increase astronomically: by 1 - 2% per day or by 500% or more per year.
4. According to the ratio of price growth for different groups of goods and services:
- balanced;
- unbalanced.
Balanced inflation arises as a result of a proportional change in the prices of different goods. Prices rise rather slowly and simultaneously for most goods and services.
Unbalanced inflation characterized by an uneven (disproportionate) rise in prices for different goods and services.
5. By the degree of forecasting:
- expected;
- unexpected.
Expected inflation- usually it is moderate inflation, which can be predicted for any period of time.
Unexpected inflation characterized by a sudden jump in prices due to an increase under the influence of inflationary expectations of the aggregate demand of the population for consumer goods, commodity producers - for raw materials and means of production.
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Inflation is an increase in the general price level accompanied by a depreciation of the monetary unit; the imbalance between aggregate supply and aggregate demand in the direction of exceeding the latter, which has developed simultaneously in all markets in the commodity money market and the resource market. In a market economy, inflation is expressed in the growth of the general price level, this is an open form of inflation. Open inflation is accompanied by a decrease in purchasing power and depreciation of money.
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Definition of inflation. Measurement of inflation: moderate, galloping and hyperinflation. Open and suppressed inflation.
Inflation this is an increase in the general price level, accompanied by a depreciation of the monetary unit; the imbalance between aggregate supply and aggregate demand in the direction of exceeding the latter, which has developed simultaneously in all markets (in the commodity, money and resource markets). In a market economy, inflation is expressed as an increase in the general price level (this isopen form of inflation). Open inflation is accompanied by a decrease in purchasing power and depreciation of money.
In an economy with fixed prices, the resulting inflation retains the form of a deficit without developing into open inflation. However, if prices are released, the shortage will quickly disappear and the general price level will rise. Many economists believedeficit manifestation of inflation in a latent form. The growing deficit is accompanied by queues, a decrease in the quality of goods and services, the development of a bureaucratic and black market; ithidden form of inflation, or suppressed inflation.
With inflation, prices can fluctuate at different speeds and in different directions at the intersectoral and intrasectoral levels. Inflation accompanied by price imbalance is calledunbalanced inflation. At balanced inflationprices move in the same direction and at about the same rate.
Open inflation is usually measured in terms of the rate of increase in the price level per year and is calculated as a percentage:
where - inflation rate in percent for the year, P1 the price level of the given year, P0 the price level of the previous year. The GDP deflator, consumer price index or industrial price index is used as an indicator of the price level.
The concept of open inflation should not be confused with price increases caused, for example, by seasonal fluctuations in supply and demand, natural disasters or economic cycles.An increase in prices that occurs not due to a distortion in the assessment of resources, goods and services that violates the proportions of exchange and distribution, but for some other reason, is not inflation..
Inflation manifests itself in varying degrees. According to the rates, moderate (or creeping) inflation, galloping inflation and hyperinflation are distinguished.Moderate (or creeping)called inflation at rates up to 10% per year; with it, the depreciation of money is insignificant. galloping inflation is limited from 10% to 100% per year; money depreciates quite quickly, so either a stable currency is used as prices for transactions, or prices take into account the expected inflation rate at the time of payment; trades are indexed. Hyperinflation in countries with developed market economies it is determined by rates of over 100% per year, in countries with unstable economies much higher; there is a rapid depreciation of money, prices can be recalculated several times a day; destruction occurs banking system, production and the market mechanism as a whole are paralyzed.
Helps recognize hyperinflationKagan's hyperinflation criterion. The American economist believes that hyperinflation in developing countries we can consider the growth rate of the price level, more than 50% per month, which, when converted to annual inflation rates, is 13,000%. Hyperinflation is considered overcome if during the previous 12 months the inflation rate did not exceed 50%.
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Inflation (lat. Inflatio - bloating) is the process of reducing the value of money, as a result of which a smaller amount of goods and services can be bought for the same amount of money after a while. In practice, this translates into higher prices.
Inflation is the overflow of financial channels with paper money, which leads to their depreciation.
Inflation is a monetary phenomenon, but it is not limited to the depreciation of money. It penetrates into all spheres of economic life and begins to destroy these spheres. The state, production suffers from it, financial market but it is the people who suffer the most.
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. The average inflation rate in the EU countries 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 rising at an astronomical rate, reaching several thousand percent per year, or over 100% per month). Paralyzes the economic mechanism, with it there is a transition to barter exchange. It is also characteristic of countries in certain periods when they are experiencing a radical break in their economic structure.
Also use the expression chronic inflation for long-term inflation. Stagflation is a situation where inflation is accompanied by a decline in production (stagnation).
A characteristic feature of galloping inflation compared to moderate is that it increases the risks associated with the conclusion of contracts at nominal prices. In this regard, when concluding transactions, either price increases are taken into account, or instead of national currency a stable convertible currency of another state is used. For example, in Russia, during a period of runaway inflation, prices for goods and services were often quoted in US dollars. Unlike moderate, galloping inflation is difficult to control. Galloping inflation affects the behavior of households and firms, inflation expectations play a big role. Each increase in prices leads to an increase in wages and costs.
Consequences of runaway inflation:
inflation expectations;
the desire to convert money into goods and real estate in order to save funds from depreciation;
refusal to provide loans with a fixed interest.
Hyperinflation is distinguished into a separate type, since it means the almost complete collapse of commodity-money circulation and financial system countries due to the loss of confidence in the money of market participants. Money is losing its natural role in the economy as a measure of value, a means of circulation, a means of accumulation, a means of payment.
The period of hyperinflation always means a crisis in the state, the collapse of the financial system. Hyperinflation can be accompanied by a default on state debts, massive bankruptcies, the maximum increase in barter and the refusal to use money, the impoverishment of the population due to the lack of the ability to save.
In the course of hyperinflation, as in Russia during the Civil War, or Germany in the early 1920s, money circulation may give way to barter altogether. Liquid goods begin to act as equivalents, the intrinsic value of which does not depend on public policy: freely convertible currency, precious metals, some goods (vodka, cigarettes, sugar). The result may be the dollarization of the economy, when foreign currency (most often during the 20th century and before the global crisis of 2008 it was the US dollar) is widely used for operations within the country or individual industries, up to the complete replacement of the national currency.
Governments are thought to be the cause of hyperinflation, due to covering public spending by issuing (issuing) new money, thereby undermining the confidence of the population in their currency. Banknotes are losing their value, and the population is trying to get rid of them as quickly as possible.
Distinguish between open and suppressed inflation. The first is manifested in the rise in prices, the second - in the disappearance of goods.
There are modern theories of inflation that make it possible to determine its types: open inflation and suppressed inflation. Open inflation is characterized by macroeconomic disequilibrium towards demand, in which the real value of money falls. . Types of open inflation:
Demand-pull inflation - generated by an excess of aggregate demand compared to the real volume of production. (Deficit of goods)
Supply (cost) inflation - means an increase in prices caused by an increase in production costs in conditions 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 - a phenomenon associated with the deformation of consumer psychology. Over the increased demand for goods allows entrepreneurs to raise prices for goods. (Demand creates supply).
Suppressed inflation characterized by external price stability (with active state intervention), but an increase in the shortage of goods, which also reduces the real value of money. The mechanism of suppressed inflation is associated with the inevitable emergence of a gap between administratively established and higher market prices. . A deficit appears, buyers in search of the right product overpay merchants. Begins movement of masses of goods from the official economy to the shadow.
57. Inflation of demand and inflation of costs. Analysis of inflation using the equation MV=PY.
1. Demand inflation- is generated by an excess of aggregate demand compared to the real volume of production. (Product shortage)
Commodity deficit is the quantity of a good that buyers cannot buy at the prevailing market price. A shortage indicates a mismatch between supply and demand and the absence of a balancing price.
2. Supply inflation (costs ) - means an increase in prices caused by an increase in production costs in conditions of underutilized production resources. An increase in unit costs reduces the volume of products offered by producers at the current price level.
INTRODUCTION
As economic phenomenon inflation already exists long time. In its origin, inflation is a phenomenon associated with the movement of money. But, originating on an unbalanced money market, inflation viruses spread beyond this sphere, causing negative processes in other parts of the economic organism: they affect production, consumption, etc.
The most general, traditional definition of inflation is the overflow of circulation channels with money supply in excess of the needs of trade, which causes depreciation of the monetary unit and, accordingly, an increase in commodity prices.
However, the interpretation of inflation as an overflow of money circulation channels with depreciating paper money cannot be considered complete. Inflation, although it manifests itself in the rise in commodity prices, cannot be reduced to a purely monetary phenomenon. This is a complex socio-economic phenomenon, generated by disproportions in reproduction in various areas of the market economy. Inflation is one of the most pressing problems modern development economies in many countries around the world.
Inflation is one of the worst economic ills of the 20th century. Its formidable symptoms have been recorded in market-type farms. Do not have immunity against inflation and those economies where the mechanisms of the market are destroyed by the administrative-command system. The more advanced the inflationary disease, the more complex the problem facing the state, the more voluminous the complex of anti-inflationary regulation measures.
History contains many examples that seem to show that inflation has not only minuses, but also pluses. Indeed, it often happens that open inflation, generating a continuous rise in prices, causes a blind reaction of market mechanisms, stimulates a revival in the commodity markets, leads to an increase in business activity, the expansion of production and employment. This is also facilitated by an inflationary surge in demand for shares. In the 1960s and early 1970s, the governments of many developed countries deliberately provoked inflationary booms of this kind, using them as a means of short term regulation economy.
However, if we keep in mind the long-term perspective, then, as proven by world economic science and confirmed economic practice, there is absolutely nothing positive in the effects of these. Moreover, they are not even neutral, but cause considerable damage to the economy. These booms, which are extremely short in time, only turn into an aggravation of the inflationary disease and complicate its course. They delay the recovery, make the use of radical and socially very painful anti-inflationary measures inevitable, are accompanied by an increase in unemployment, a temporary decline in living standards, and so on.
But it's not only that. Inflationary booms, all the more deliberately provoked, deform market mechanisms and reduce the efficiency of the economy. For example, the growth in demand for shares mentioned earlier and, accordingly, the appreciation are, in essence, purely speculative. They are dictated by the desire of the owners of savings to find their money more or less safe use, save themselves from inflation, and not at all by changes in needs, structural shifts.
Drawing up and implementing plans for inflationary stimulation of the economy are only reminiscent of the "treatment" of a serious illness with narcotic drugs. Without affecting its roots at all, the drug can only create the appearance of an improvement in the state of health. Well, in the future one can hardly expect anything other than a decrease in the body's resistance, further progression of the disease.
1. Concept, essence of inflation:
The concept of inflation.
Inflation (lat. Inflation - inflation) means the overflow of the sphere of circulation of banknotes in excess of the actual needs of the national economy. Usually, inflation is based on not one, but several interrelated causes, and it manifests itself not only in price increases - along with open, price inflation, there is hidden or suppressed inflation, which manifests itself primarily in a shortage, deterioration in the quality of goods.
During inflation, paper money depreciates in relation to: a) gold (under the gold standard), b) goods, c) foreign currencies. As a result, in the first case, there is an increase in the market price of gold in paper money, in the second case, an increase in the prices of goods, and in the third case, a depreciation of the national currency against foreign currencies. monetary units retained its former real value or depreciated to a lesser extent.
Inflation is understood as an imbalance of supply and demand (a form of general equilibrium disturbance), which manifests itself in a general rise in prices. But this does not mean that all prices rise during inflation. The prices of some goods may rise, while others remain stable; The prices of some goods may rise faster than others. These proportions are based on a different relationship between supply and demand and different elasticity.
Inflation can be defined as a continuous general rise in prices. And in this case, the key words in its definition will be the following: continuous, i.e. prices rise constantly; and general, i.e. price increases cover the entire market and this is typical for the economy as a whole.
However, not every price increase is an indicator of inflation. Prices may rise due to improved product quality, limited production factors, deterioration in the conditions for the extraction of fuel and raw materials, and changes in social needs. But this will, as a rule, not be inflationary, but to a certain extent a logical, justified increase in prices for individual goods.
There is also a somewhat different view of the nature of inflation, which is quite natural, because inflation is an extremely complex, contradictory, insufficiently studied process. According to some economists, inflation should be understood as an increase in the general price level in the economy. Arguing from this point of view, P. Heine wrote that one should not forget: prices change not only for goods, but also for measuring their value, i.e. of money. Inflation is not an increase in the size of objects, but a decrease in the length of the ruler that we use. He draws attention to the fact that under conditions of natural exchange (in the absence of money) we would in no way encounter inflation, a simultaneous increase in all prices would be logically impossible.
One thing is certain: the fall in the purchasing power of money and the rise in prices are closely related. Inflation is a decrease in the purchasing power of money and, one might say, it is an increase in the money prices of goods.
Causes of inflation.
The causes of inflation are manifold. Usually, inflation is based on a mismatch between money demand and the mass of goods - the demand for goods and services exceeds the volume of trade, which creates conditions for manufacturers and suppliers to raise prices regardless of the level of costs. Disproportions between supply and demand, excess of income over consumer spending can be generated by a state budget deficit (government spending exceeds revenues); 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 setting of state prices, causing distortions in the magnitude and structure of demand; other factors.
Let us refer as an example to the sharp aggravation of the state budget deficit in our country in the second half of the 1980s. From 1985 to 1989 the gap between income and expenditure state budget increased from 18 to 120 billion rubles, or from 3.5 to 19% of the country's national income. The increased deficit has done great harm monetary circulation spurred inflation. Unjustified monetary payments sharply worsened the situation in the consumer market.
Rising prices and the appearance of an excess amount of money are only the external manifestations of inflation; its underlying cause is the violation of the proportions of the national economy, i.e. general imbalance. In the world economic literature, there are three main forces that lead to an imbalance in the national economy and inflation:
· State monopoly on the issuance of paper money, foreign trade, non-production, primarily military, and other expenses associated with the functions of the modern state.
· trade union monopoly, which sets the size and duration of a particular level of wages.
· the monopoly of the largest firms to determine the prices of their own costs.
All these three reasons are interconnected and each in its own way can lead to an increase or decrease in supply and demand, upsetting their balance. The significance of the sources of inflation is important for the development of specific measures to combat inflation.
Like most other phenomena characteristic of a market economy, inflation cannot be assessed unambiguously. The negative consequences of inflation are well known in our country. Much less well known is the fact that inflation also contributes to economic growth. Therefore, like most other processes characteristic of the market regulation of the economy, inflation should not be regarded as an absolute evil that must be suppressed and destroyed. It is an instrument that can be used by the state for the benefit of society and its economic development.
The scientific approach to the problems of inflation differs from the ordinary mythologized one by a sober assessment of the danger of inflation getting out of control and the development of recommendations for its regulation, clearly assessing the specific historical and national-state conditions and features of the functioning of the national economy.
Inflation, helping to increase prices and the rate of profit, at first acts as a factor in the revival of the situation, but as it deepens, it turns from an engine into a brake, increasing the socio-economic instability in the country.
In countries with developed market economies, creeping inflation is regarded as a normal factor in economic growth. However, galloping, and even more so, hyperinflation is perceived as a negative phenomenon, since it carries huge socio-economic costs.
The fight against inflation is a macroeconomic task. The government faces the main question: either eliminate inflation through radical measures, or adapt to it. Different countries solve this dilemma in their own way. The US and the UK are actively fighting inflation, while other countries are developing a set of adaptive government measures.
Mechanism of inflation
To consider the mechanism of inflation, let us turn to its two types: firstly, demand-side inflation, in which the balance of supply and demand is disturbed by demand, and, secondly, supply-side inflation, in which the imbalance in supply and demand occurs due to an increase in production costs .
Let's return to the AD-AS model (aggregate demand - aggregate supply). Obviously, for the start of inflationary processes, it is enough that the aggregate demand exceeds the aggregate supply. This situation is possible under the following circumstances:
a) aggregate demand rises sharply, but aggregate supply does not change;
b) aggregate supply decreases with constant aggregate demand;
c) the expansion of aggregate demand exceeds the growth of aggregate supply.
Demand inflation.
Considering the causes of inflation, economists distinguish between two types of inflation - "buyers' inflation" (demand inflation) and "sellers' inflation" (cost-push inflation). In essence, these are two, as a rule, interconnected, but unequal causes of inflation: one lies on the demand side (excess Money from buyers), the other - from the supply side (increase in production costs).
Demand-pull inflation is possible if aggregate demand grows at a constant aggregate supply, or the growth of aggregate demand exceeds the expansion of supply (Fig. 1). Excess demand causes prices to skyrocket. The essence of demand inflation is sometimes explained in one phrase: "too much money chasing too few goods." Rising prices create opportunities to increase profits. Entrepreneurs are expanding production, attracting additional labor. As a result, the pressure of unemployment falls, which contributes to higher wages and, consequently, to a further increase in demand and higher prices. There is an inverse relationship between inflation and unemployment.
Potential
Real GNP and employment
rice. 2
In the first leg of the curve, total spending (C + I + G + NX) is so low that the gross national product falls short of its maximum level. Unemployment is high, and a large proportion of production capacity is idle.
Suppose that aggregate demand began to grow, this will lead to an increase in production, a decrease in unemployment, the price level will rise very slowly (this is due to the fact that there is a huge amount of unused labor and material resources: after all, yesterday's unemployed will not immediately demand higher wages).
As demand grows, the economy enters the second segment of the curve: production grows, prices rise. As production expands, stocks are depleted, it becomes more and more difficult to find the necessary economic resources. After all, attracting skilled labor requires higher wages, which will lead to an increase in costs and, accordingly, prices.
The third segment is characterized by full employment, the maximum gross product has been reached, i.e. the economy cannot respond to an increase in demand with an increase in volume. The only thing that can cause an increase in aggregate demand is an increase in prices.
Demand inflation conditions:
Growth in demand from the population, the factors of which are wage growth and employment growth.
· an increase in investment and an increase in demand for capital goods during an economic recovery.
Growth in government spending (growth in military and social orders).
P
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rice. 3 (demand inflation)
Assume that the economy is close to full employment and capacity utilization. The growth of consumption expenditures by the population, enterprises, and the state shifts the aggregate demand curve upwards, and prices rise.
Supply inflation.
In this case, the mechanism of inflation begins to unwind due to the fact that costs are growing. Two starting points are possible: costs begin to rise as a result of higher wages (trade union pressure, workers' demands) or due to higher prices for raw materials and fuel (increase in import prices, changes in mining conditions, higher transport costs, etc.) (Fig. 4).
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rice. 4
Supply-side inflation means rising prices, provoked by an increase in production costs in conditions of underutilization of production resources. It is sometimes referred to as cost-push inflation. Recently, the type of inflation, in which prices rise with a decrease in aggregate demand, is often encountered in world practice.
The theory of cost-driven inflation explains price increases by factors that increase costs per unit of output. An increase in unit costs reduces profits and the volume of output that firms are willing to offer at the current price level. As a result, the supply of goods and services decreases and prices increase. Therefore, under this scheme, it is not demand but costs that drive up prices.
The main source of supply inflation is the growth of wages and prices due to the rise in prices of raw materials and energy carriers. Let us illustrate the mechanism of supply inflation (Fig. 5).
rice. five
As can be seen from the graph, an increase in the supply price (an increase in costs) leads to a shift in the supply curve vertically upwards. As a result, after a certain time, the balance of supply and demand is adjusted again, but already at a point corresponding to a higher price.
Stagflation.
Stagflation is a situation where an increase in the general price level occurs with a simultaneous reduction in production, i.e. price and volume of output change in different directions.
Economists explain the causes of stagflation in different ways. One point of view: the existence of structural imperfections. In an economy with a well-established market mechanism, an increase in prices for some goods leads to a decrease in prices for other goods, i.e. market equilibrium must be observed, and in the absence of a proper level of competition, there is a “rigidity” of prices in the direction of their decrease.
Another point of view: stagflation is caused by monopolies and their power over the market. After all, the demand curve of a monopoly firm coincides with the demand curve for a product, therefore, the amount of product that can be sold increases as the price decreases, and it is often more profitable for the monopolist to produce less and sell more.
There is also an opinion that inflationary expectations may be the cause of stagflation, when the owners of production factors begin to overestimate the cost of their services, expecting a fall in their income from inflation.
Types of inflation.
From the point of view of manifestation, there are "open" and "repressed" inflation.
open inflation.
It is typical for market economy countries, where the interaction of supply and demand contributes to open unlimited price growth. Although open inflation distorts market processes, it nevertheless retains the role of signals for prices, showing producers and buyers areas for profitable investment of capital.
Suppressed inflation.
This is hidden inflation inherent in an economy with command and control over prices and incomes. Strict control over prices does not allow inflation to openly manifest itself in rising prices. In such a situation, inflation takes on a hidden character. External prices remain stable, but as the supply of money increases, their excess causes a shortage of goods.
For a long time, the economy of the USSR was characterized by suppressed inflation, which was expressed in the growth of unsatisfied demand and monetary savings of the population, which could not be realized. The rate of savings in income growth in 1969 was 50%, in 1976 - 79%, in 1984 - 100%. Savings were often forced, the inflationary gap was 40%. The shortage gave rise to queues, a shadow economy, and weakened incentives to work.
As a result of suppressed inflation, the commodity deficit becomes the visible side of the invisible inflationary process, since the same amount of goods accounts for more banknotes. AT market economy the disproportion would have found a natural outlet in the form of an increase in money prices.
We can say that with suppressed inflation, only a part of banknotes are money. Buyers, wanting to confirm the value of their money, try to find a scarce product. A "black market" appears - an illegal form of inflation in the conditions of its suppression. The "black market" to some extent shows the true prices of goods, and the illusion of price stability creates the appearance of economic well-being, misleading sellers and buyers.
Another criterion for the type of inflation is the rate of price growth. In this regard, there are three types of inflation:
1) moderate inflation, when prices rise by less than 10% per year, the value of money is preserved, there is no risk of signing contracts at nominal prices. In the West, it is regarded as an element of the normal development of the economy, which does not cause much concern. The average inflation rate in the countries of the European Community has been about 3-3.5% in recent years.
2) Galloping inflation - price growth is measured by double-digit and large figures per year, contracts are "tied" to price increases, money materializes at an accelerated pace. It is believed to be dangerous National economy and requires anti-inflationary measures. Such high rates were observed in the 1980s, for example, in many countries of Latin America and some countries of Central Asia. Hyperinflation - prices are growing at an astronomical pace, the discrepancy between prices and wages is becoming catastrophic, the well-being of even the most affluent strata of society is being destroyed, unprofitable and unprofitable largest enterprises; it paralyzes the economic mechanism, since the effect of flight from money in order to turn it into commodities is sharply increased. Economic ties are being destroyed, a transition is being made to barter exchange. Its conditional milestone is a monthly (within three to four months) price increase of over 50%, and the annual one will be four-digit figures. The peculiarity of hyperinflation is that it turns out to be practically uncontrollable; the usual functional relationships and the usual levers of price control do not work. The printing press is running at full capacity, frenzied speculation is developing. Production is disorganized. To stop or slow down hyperinflation, one has to resort to emergency measures. But there is no unambiguous idea of how exactly to deal with hyperinflation. Various, often very conflicting recipes are offered. In order to get ahead of the inevitable price increase expected by all, the owners of "hot" money tend to get rid of them as quickly as possible. As a result, rush demand unfolds; First of all, those goods are bought up that can serve as a means of partial savings (real estate, art, precious metals). People act under the pressure of "inflationary psychosis", and this spurs prices up, and inflation begins to feed itself. A classic example of hyperinflation is the situation that developed in Germany and a number of other countries after the First World War. In Germany in 1923 the level of price increases was in the ten and twelve figures; wages had to be spent immediately, because during the day the prices of products rose several times. Running a successful business in a hyperinflationary environment is next to impossible. It can only be a survival strategy. The recipe for self-survival is as follows: autonomy and self-sufficiency, simplification of production, reduction of external relations, naturalization of the basic elements of intra-company management.
Inflation is a very complex, extraordinarily contradictory phenomenon. A direct analogy should not be drawn between price inflation and the issuance of money, although this distinction is sometimes not made in the literature.
The definition of inflation given by us as a process of depreciation of money and overflow of channels of circulation with paper money does not fully exhaust the essence of this ambiguous phenomenon, which often has a significant impact on the general state of the economy. In some cases, even surgery is applied.
Balanced and unbalanced inflation.
According to the degree of balance of price growth, two types of inflation are distinguished: balanced and unbalanced.
With balanced inflation, the prices of various commodity groups relative to each other remain unchanged, and with unbalanced inflation, the prices of various goods are constantly changing relative to each other, and in different proportions.
Balanced inflation is not terrible for business. We only have to periodically raise the prices of goods. The risk of loss of profitability is inherent only to those entrepreneurs who are the last in the chain of price increases. These are, as a rule, manufacturers of complex products based on intensive external cooperative ties. The price of their products reflects the entire amount of the increase in prices of foreign cooperation, and it is they who risk delaying the sale of super-expensive products to the final consumer.
Unbalanced inflation is a big problem for businesses. But it is even worse when there is no forecast for the future, there is no certainty even that the commodity groups that are leaders in price growth will remain leaders in the near future. It is impossible to rationally choose the areas of capital investment, calculate and compare the profitability of investment options. Industry cannot develop under such conditions, industrial development seems unreal. Only short speculative-intermediary operations are possible.
Inflation is 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, they say that over the past time it has decreased, the money has depreciated - it 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 the prices of individual goods and services can rise, fall or remain unchanged. It is important that the general price level change, i.e. GDP deflator.
Causes of inflation
In economics, the following causes of inflation are distinguished:
- An increase in government spending, to finance which the state resorts to money emission, increasing 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, and financial resource for lending, it is taken not from, but from the issue of unsecured currency.
- The monopoly of large firms on the determination of prices and their own production costs, especially in the primary industries.
- The monopoly of trade unions, which limits the ability of the market mechanism to 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 volume of goods and services corresponds to the same amount of money.
- An increase in government taxes and duties, excises, and so on, with a stable level of money supply.
Types of inflation
- Demand 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 terms 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 different goods remain unchanged relative to each other.
- Unbalanced inflation- the prices of different goods vary in relation to each other in different proportions.
- Projected inflation is inflation, which is taken into account in the expectations and behavior of economic entities.
- Unpredictable inflation- comes as a surprise to the population, as the actual growth rate of the price level exceeds the expected one.
- Tailored 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.
- Stagflation- this is a situation in which the economic recession and the depressed state of the economy (stagnation and rising unemployment) are combined with rising prices - inflation.
- Agflation is agricultural inflation. This term was coined by economists from the investment bank Goldman Sachs to refer to a sharp increase in prices for agricultural products.
Swedish economist B. Hansen introduced the concepts of open and hidden (repressed) inflation. open inflation manifested in a continuous rise in prices. Hidden inflation characterized by the fact that prices wage are under the strict control of the state, and the main form of expression is a commodity deficit. In the USSR, inflation was hidden.
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.
Uneven growth of prices by commodity groups generates inequality of profit rates, stimulates the outflow of resources from one sector of the economy to another (for example, in Russia from industry and agriculture to trade and the financial and banking sector).
Types of inflation by price growth rates
Depending on the rate of price growth, the following types of inflation are distinguished:
- Creeping (moderate) inflation- price growth of less than 10% per year. Many 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, 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. The average inflation rate in the EU countries in recent years has amounted to 3-3.5%. At the same time, there is always a 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 growth from 10 to 50%. Dangerous for the country's economy and requires urgent anti-inflationary measures. Predominates in;
- Hyperinflation- prices are growing very quickly, from tens (from 50%) to 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. It paralyzes the economic mechanism; during hyperinflation, a transition to barter exchange usually occurs. It often occurs during times of war or crisis.
The opposite process of inflation is a decrease in the general price level (negative growth). In the modern economy, it is rare and short-term, usually seasonal. For example, grain prices tend to decline immediately after harvest. Prolonged deflation is characteristic of very few countries.
Inflation factors
The rate of exchange of money, not money supply as an inflation factor:
Inflation functions
Inflation is used to redistribute national income and social wealth in favor of the initiator of the inflationary process, which in the vast majority of cases is the currency emission center (FRS). At the same time, if the issue of the national currency is due to the purchase central bank foreign exchange, there is a transnational redistribution of social wealth.
Discussion is closed.
