The concept and essence of inflation

The word “inflation” is familiar to almost every person. However, despite all its obviousness, this phenomenon is characterized by rather complex processes. Some nuances are still not even fully studied by science. This article will talk about the nature of inflation, the reasons for its occurrence and the role it plays in the modern economic model.

The essence of the concept

Inflation is the general increase in prices of goods and services over time. That is, after a certain period, the cost of the same products increases (without improving their consumer qualities). Money depreciates. For the same number of banknotes it is possible to buy fewer goods.

If the reverse processes begin and the same amount of money can buy more goods, then we talk about deflation. In this case, product prices are reduced. The purchasing power of banknotes is growing.

The concept of “price” in this context is tied to a specific currency. That is, an increase or decrease in the cost of goods/services occurs in relation to a certain monetary unit.

Causes of inflation

There are two main reasons for the rise in the cost of goods in relation to any currency. In accordance with this, two types of inflation are distinguished: demand (monetary) inflation and supply (cost) inflation.

Demand inflation.

This type of inflation is often called monetary inflation. Because it directly depends on the amount of money in the system. If the volume of money increases faster than the volume of products produced in the country, then prices rise. This mechanism is based on the well-known principle - the more common an object is in nature, the less valuable it is, and vice versa.

Particular attention began to be paid to this factor when, with the discovery of America, a large amount of gold poured into Europe from the new continent. The production of the precious metal at that time increased tenfold. There was more of it. As a result, the prices of goods that were bought for it also began to rise.

In the modern world, money is not tied to any metals. They are obligations of the state. Therefore, the direct issue (issue) of banknotes is under strict control. However, the banking system constantly produces, so to speak, indirect emission of money. There is a concept of the monetary base - this is cash in circulation. And the concept of money supply is the monetary base plus deposits (deposits) of bank clients. Banking organizations issue loans against these deposits. Issued loans, in turn, can also become deposits (in other banks). Thus, the modern financial system is built on lending. And the volume of money supply depends on the number of loans issued.

The central bank can regulate the volume of money supply. By reducing the base (key) rate, it makes loans cheaper and more attractive. Due to the increase in the number of loans issued, the money supply grows, and inflation follows it. When the key rate increases, the money supply decreases. The Central Bank can also change the rate of reserves that banks pay to the regulator (all banks are required to send part of the funds from attracted deposits to Central Bank reserves). When this rate decreases, the number of loans issued by banks increases, and, therefore, the money supply and inflation increase.

Theoretically, inflation may not rise if the volume of goods produced corresponds to the growth of the money supply. That is, everything depends on the ratio of the commodity supply and the money supply. In practice, establishing complete equilibrium turns out to be quite difficult. Therefore, usually the volume of money supply more than covers the amount of output. And inflation fluctuates within a certain range.

In the event of an economic crisis, confidence within the banking system decreases. The number of loans issued and deposits attracted is declining. Some borrowers go bankrupt. Following them, individual banks also go bankrupt. As a result, the money supply shrinks sharply. Deflation is coming. This is very bad in the modern economic model.

Cost-push inflation (supply).

This type of inflation occurs when manufacturers begin to increase the prices of their goods. They may do this for various reasons. In some cases, manufacturers are simply forced to change price tags due to rising costs (that’s why it’s called cost inflation). For example, the state increases taxes, or the cost of basic raw materials increases. In other cases, price increases are unjustified - they may be caused by the treacherous actions of monopolies or companies that have entered into price fixing. To prevent this from happening, the state usually has antimonopoly services.

There are other types of inflation. But their characteristics often fit into the two categories presented above. For example, if in a country the volume of output decreases while the volume of money supply remains the same, then prices will rise. But manufacturers often reduce the volume of goods they produce precisely because their costs are rising. Also, the term “imported inflation” describes the process of increasing prices for foreign goods. But rising prices for foreign goods increase the costs of companies that import. That is, in this case, cost inflation also takes place.

Cost-push inflation also increases when the national currency depreciates. In this case, imported goods become more expensive. The exchange rate of the national currency can often fall due to the fact that foreign capital flows out of the country. In this case, the ratio of foreign currency and national currency changes. Foreign banknotes are in short supply - therefore their value increases compared to the national currency of the country.

It is worth mentioning the impact of unemployment on inflation. High employment—that is, low unemployment—tends to increase inflation. This is because consumption is increasing. People who have jobs and receive salaries spend money. This develops inflationary processes. Especially if there is consumption of goods on credit. High unemployment leads to lower inflation.

But sometimes inflation is accompanied by rising unemployment. This is called stagflation - production falls, and inflation and unemployment rise. For the first time, this situation clearly manifested itself in the 1970s in the United States. Then the cost-push inflation caused by the devaluation of the dollar and the rise of oil was too great.

Factors that influence the emergence of inflation can intersect and influence each other, causing complex processes. For example, when the Central Bank increases rates, on the one hand, the money supply decreases - demand inflation decreases. But at the same time, businesses receive more expensive loans from banks. Companies pass these costs on to consumers by raising prices for their products. As a result, supply inflation, on the contrary, is growing. The resulting increase or decrease in prices depends on which type of inflation prevails in a particular situation.

How is inflation measured?

There are various ways to do this. In accordance with them, the inflation rate is determined - that is, the rate of price growth. The inflation rate is calculated using the formula: TI = (P – P1)/P1. Where P is the average price level in the current period, P1 is the average price level in the previous period. In this way, you can calculate the annual, quarterly, monthly inflation rate, and so on.

There are three types of inflation based on rates:

• moderate or creeping inflation – within 10% per year, does not pose a threat to the economy;
• galloping inflation - from 20% to 200% per year, raises serious concerns and requires action;
• hyperinflation - more than 200% per year, sometimes can reach thousands of percent, has a very negative impact on the economy, destroys the financial system, leads to a sharp drop in confidence in trade (the transition to barter begins) and practically stops lending.

To calculate the average price level, different methods are used. These methods determine one or another inflation rate. Among the main inflation factors, there are two key ones: the consumer price index (CPI) and the GDP deflator.

The Consumer Price Index (CPI) is calculated based on a basket of consumption. It includes basic goods that are purchased by the majority of the country's population and which are necessary for normal life. The composition of the consumer basket is formed during a certain base year, and then may not change for many years. At the same time, the composition includes both domestic and imported goods.

The GDP deflator takes into account the prices of all goods produced in the current period. That is, it is calculated not according to the consumer basket of the base year, but in general according to all types of manufactured products for a specific period (usually the past year). The composition of products may vary from year to year. But in this case, only domestic goods (included in GDP) are taken into account, and imported ones are not taken into account.

As you can see, the CPI and the GDP deflator are very different from each other. These are different inflation rates that can show different values. The CPI is usually mentioned in official government statements and in the media.

There are other inflation rates. For example, the Producer Price Index (PPI) calculates prices not for final goods, but for intermediate goods, that is, those purchased by companies producing final products. The basic CPI is also widely used - it is calculated without taking into account prices for food and electricity, or energy resources.

Inflation - good or bad? What is its impact?

The modern financial and economic model is built on lending. The banking system plays a key role in it. The volume of money supply depends on the number of loans issued. If there is no inflation in the country, lending will slow down significantly. It is unlikely that anyone will decide to take out a loan if money is constantly becoming more expensive and not depreciating. Over time, consumption will also slow down, which will lead to a crisis of overproduction, since the money supply will decrease compared to the commodity supply.

That is, at first glance it looks like inflation is good. Indeed, in the economic model currently chosen in the world, low inflation (within 2-5%) is desirable. The beneficiaries from it are primarily bankers (due to the expansion of lending) and goods producers (due to increased consumption). But the losers are ordinary people who are seeing constant price increases. In addition, their cash savings in national currency depreciate over time.

And rates on bank deposits will always be lower than on loans issued. In the long term, they do not even fully match the inflation rate. If inflation gets out of control, then money completely depreciates in a short period of time. And in this case, not a single deposit will save your savings. The same can be said about the devaluation of the national currency - inflation of imported goods turns out to be much higher than the rates of deposits offered by banks.

Saving savings requires people to think more carefully about their financial strategy. Sometimes securities and commodities save from inflation - their value is revalued. Gold is a good hedge against inflation. But working with these tools involves learning the basics of economics. It is quite difficult for a person inexperienced in financial matters to completely protect their savings from depreciation. These are the costs of the modern inflationary development model.

Theoretically, you can choose another economic model, not inflationary. For example, the gold standard model. In this case, bankers and manufacturers will not be able to make such huge profits as they do now. And economic growth will be less rapid. But more stable. The main task will be to prevent a crisis of overproduction and regulate the production of goods and their consumption. At the same time, it is possible that the price of gold will have to be periodically revised; most likely, it will constantly increase in price. To recover from the Great Depression, the United States abandoned the gold standard in favor of an inflationary model. But the crisis of overproduction again overtook the world economy in 2008. It’s just that now, due to inflation, the way out of it is happening more smoothly. However, the story of the modern crisis of overproduction is still not over. Risks remain. And all problems are successfully transferred to the shoulders of future generations. Therefore, the question of which model is better remains open.

Inflation in Russia in 2015-16

At the end of 2015, official inflation (CPI) in the Russian Federation amounted to 13%. At the same time, during the year it rose to 17% - February 2015 to February 2014. For certain types of goods (food) – price increases reached 20%.

This is a bit much. But not critical. There are currently no particular threats to a significant acceleration of inflation (up to 40-50% or more).

The main reason for the rise in prices was the devaluation of the ruble due to the fall in oil prices. Most of the products consumed in Russia are imported. It has gone up in price. Now the main risks associated with the collapse in the price of black gold have already been played out. Additional risks may lie only in the political plane. At the same time, the Central Bank limits the growth of the money supply. And consumption is declining. Therefore, there is no threat of hyperinflation yet. The financial system is more or less stable. But the economy will slowly deteriorate in the long term.

Inflation – This is the depreciation of money, a decrease in its purchasing power.

Literally translated from Latin, inflation means "bloating", i.e. overflow of circulation channels with excess paper money, not backed by a corresponding increase in the commodity supply.

It is obvious that inflation is a process caused by the interaction of two factors - pricing and monetary. 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 a change in its quantity in circulation.

Based on the degree of government intervention in market processes, inflation is divided into open And suppressed (repressed). Open inflation is characterized by state non-interference in the processes of price and wage formation. Suppressed inflation refers to a situation caused by government controls on rising prices or wages, or both. It results in a commodity shortage.

Types of inflation are determined by its level, on which socio-economic policy and the nature of anti-inflationary measures depend:

1. Moderate inflation(3-4% per year). This is a normal level that plays the role of a catalyst for economic growth.

2. Creeping inflation(8-10% per year). This indicates an increase in destabilization phenomena in the economy.

3. Galloping(up to 50% per year).

4. Hyperinflation(50-100% per year). Debtors (including the state) benefit from hyperinflation.

There are 2 types of inflation:

1) inflation of demand (buyers);

2) inflation of costs (sellers).

Demand inflation model shows that for a given amount of aggregate supply, an increase in aggregate demand leads to a higher price level. At the same time, entrepreneurs are expanding production and attracting additional labor. Nominal wages increase.

Inflation model driven by rising production costs, there are 2 reasons for its occurrence:

Due to the rise in price of fuel and raw materials, due to rising import prices, changes in production conditions, increased transportation costs;

As a result of wage increases under pressure from trade unions.

If the wage increase is not balanced by some counteracting factors (for example, an increase in labor productivity), then average costs increase. Manufacturers are beginning to reduce production volumes. With constant demand, a decrease in supply leads to an increase in prices. Unemployment is rising.

Inflation has monetary and non-monetary causes.

Non-monetary reasons:

· imbalances in the economy;

· excessive development of the military-industrial complex (Military-Industrial Complex);

· small export sector with strong import dependence;

· decline in GDP (gross domestic product);

· inflation expectations of the population.

Monetary nature of inflation:

q state budget deficit;

q the influence of the money supply on inflation rates. An increase in Central Bank assets in all cases leads to an increase in the money supply, which means an increase in effective demand. As a result, the price level for goods increases;

q velocity of circulation of money (it increases when the population flees the national currency, which is explained by low confidence and inflation expectations of the population).

Inflation expectations have been given great importance in recent decades. The use of the concept of expectations in economic theory was substantiated by J. Hicks in his work “Cost and Capital”. The elasticity of expectations meant the relationship between the expected and actual changes in the value of a product.

In modern inflation theories there are 2 concepts:

§ adaptive expectations;

§ rational expectations.

Adaptive expectations are built taking into account the forecast error, which is defined as the difference between the expected and actual inflation levels for the previous period.

The adaptive expectations model stipulates that the expected inflation rate can be based on a weighted average of past inflation rates.

Rational expectations are based on a comprehensive account of both past and future information, in particular the policy of regulation of that part of the economy, the state of which affects the subject of expectations. The “rationality” of expectations is manifested in the fact that the subject does not refuse in advance any source of information and takes it into account in accordance with its reliability and significance.

"Tula Institute of Economics and Informatics"

Non-state educational organization

Higher professional education non-profit partnership

Essay

By discipline:Money, credit, banks.

On the topic of:Inflation.

Is done by a student: Chernopyatov K.S. 2nd yearTOFIK-08

Supervisor: _________________________________

Tula, 2010

Introduction…………………………………………………………………………………..3

The concept of inflation………………………………………………………..………....3

Causes of inflation…………………………………………...…………….…4

Main types of inflation………………………………………....…….6

Demand and cost inflation………………………………………………………8

Consequences of inflation…………………………………………………………….10

Conclusion……………………………………………………….…...….11

References………………………………………………………12

Introduction.

The problem of inflation occupies an important place in economic science, since its indicators and socio-economic consequences play a serious role in assessing the economic security of the country and the world economy.

Inflation is painful. She robs people, their money savings lose their former value.

Inflation creates enormous uncertainty in society and thus causes a lot of anxiety. In an environment of high inflation, it is difficult to make business decisions, and even more difficult to make long-term investments.

Inflation concept.

The term inflation (from the Latin inflation - inflation) first began to be used in North America during the Civil War of 1861-1865. and denoted the process of swelling of paper money circulation. The concept of inflation became widespread in economic literature in the 20th century immediately after the First World War. Until now, the generally accepted definition of inflation is the process of depreciation of money, which occurs as a result of the overflow of circulation channels with money and rising prices. There are other definitions of inflation:

inflation- This is an “increase in the general price level.”

inflation- This is the depreciation of money, a decrease in its purchasing power.

inflation is a disease of paper money circulation, when money has lost its connection with gold.

Inflation is expressed primarily in the depreciation of money, which depreciates in relation to:
1. Towards gold. This is reflected in an increase in the market price of gold;
2. To the goods. This is manifested in the growth of commodity prices - wholesale and especially retail;
3. To foreign currencies. This is reflected in the depreciation of the national currency in relation to foreign monetary units, which have retained their previous real value or have depreciated to a lesser extent.

But inflation cannot be equated with any depreciation of money.

Inflation- this is a crisis state of the monetary system. To ensure that the economy does not experience inflationary crises:

There must be a constant balance of the state budget.

The central bank must pursue ideal policies.

The state should not interfere in the distribution of income.

The country should be populated by citizens with a healthy market psychology, people devoid of inflationary expectations.

Causes of inflation.

The following are the main causes of inflation:

Disproportionality– imbalance of government expenditures and revenues, the so-called state budget deficit. Often this deficit is covered by the use of the “printing press”, which leads to an increase in the money supply and, as a result, to inflation.

Inflation-risky investments– mainly militarization of the economy. Military appropriations lead to the creation of additional effective demand and, consequently, to an increase in the money supply. Excessive military appropriations are usually the main cause of chronic government budget deficits, as well as an increase in the national debt, to cover which additional paper money is issued.

Lack of a pure free market and perfect competition as part of it. The modern market is largely oligopolistic. The oligopolist, trying to maintain a high price level, is interested in creating a shortage (reducing production and supply of goods). Trade unions act in a similar way, citing the need to maintain the living standards of their members. Thus, their joint efforts cause prices and wages to move only upward.

Inflation expectations– the emergence of self-sustaining inflation. The population and economic entities are getting used to a constant increase in the price level. The population demands an increase in wages and is stocking up on goods for future use, expecting their prices to rise soon. Manufacturers are afraid of price increases on the part of their suppliers, while at the same time factoring into the price of their goods the increase in prices they predict for components, thereby rocking the inflation flywheel.

It is necessary to distinguish between internal and external factors of inflation.

Among internal factors should be highlighted:
1. Non-monetary factors:
- cyclical and seasonal factors of price growth;
- change in labor productivity;
- forced state regulation of pricing;
- rising taxes;
- monopolization of production;
- changes in market conditions;
- natural disasters and other factors that do not depend on the state of the monetary sphere.
2. Monetary factors:
- crisis of public finances;
- budget deficit;
- issue of money.

TO external factors inflation include:
- global structural crises (raw materials, energy, currency);
- illegal export of gold and currency.

Inflation is not overcome when the government budget is maintained without a deficit. In this case, inflation is caused by special factors. The most important of these is credit expansion. It is expressed in the expansion of lending (short-term and long-term) in the form of non-cash payment turnover. On this basis, bank emission of credit money is growing, which creates additional demands for goods and services. This is the active role of the credit system in increasing inflation.

Main types of inflation.

There are several types of inflation. First of all, those that are distinguished from the position of the rate of price growth (the first criterion), i.e. quantitatively:

normal inflation– the rate is growing slowly, approximately 3 – 3.5% per year, the scale of inflation is controllable.

inflation can be moderate and creeping, under which prices increase by no more than 10% per year. Many modern economists, including followers of the economic teachings of Keynes, consider such inflation necessary for effective economic development. Such inflation allows prices to be effectively adjusted in relation to changing production and demand conditions.

galloping inflation, which is characterized by price increases from 20% to 200% per year, is already a serious strain on the economy, although price increases are not difficult to predict and include in the parameters of transactions and contracts.

hyperinflation– begins when prices increase by more than 50% per month over a long period of time – six months or more; over the course of a year, prices rise no less than 130 times, while money is forced out of circulation, giving way to commodity barter. The expenditure of wages and rising prices are becoming catastrophic, which affects the well-being of the population, even the most affluent strata.

Types of inflation from the point of view of the second criterion - the correlation of price increases for various product groups, i.e., according to the degree of balance of their growth:

a) balanced inflation;

b) unbalanced inflation.

With balanced inflation, the prices of various goods remain constant relative to each other, and with unbalanced inflation, the prices of various goods constantly change in relation to each other, and in different proportions.

From the point of view of the third criterion (expectability or predictability of inflation), the following are distinguished:

a) expected;

b) unexpected .

Expected inflation can be predicted and predicted in advance, with a reasonable degree of reliability; unexpected - occurs spontaneously, sporadically, a forecast is impossible.

Demand and cost inflation.

Depending on the reason that predominates, two types of inflation are distinguished:

demand inflation;

production cost inflation.

As a result of demand inflation, there is an excess of money in relation to the quantity of goods, and prices rise.

Demand inflation caused by the following monetary factors:

Militarization of the economy and increased military spending . Military equipment is becoming less and less suitable for use in civilian industries, as a result of which the monetary equivalent opposing military equipment turns into a factor that is superfluous for circulation.

State budget deficit and rising domestic debt . For example, the real budget deficit of the Russian Federation at the end of 1992 amounted to 11% of GDP. The deficit was covered by placing government loans on the money market or through additional issue of fiat banknotes from the central bank. The first path is typical for the United States, and the second for Russia. However, in May 1993, the RF state budget deficit began to be covered by placing government short-term obligations (GKOs) on the market; by mid-1994, they were issued in the amount of 3,020.8 billion rubles.

Credit expansion of banks . Thus, as of June 1, 1994, the volume of loans provided by the Bank of Russia to the government amounted to 27,655 billion rubles, or 38.9% of its consolidated balance.

Imported inflation . This is the issue of national currency in excess of the needs of trade turnover when purchasing foreign currency by countries with a positive balance of payments.

Excessive investment in heavy industry . At the same time, elements of productive capital are constantly being extracted from the market, in return for which additional money equivalent is put into circulation.

Supply (cost) inflation, caused by an increase in any production costs (wages, means of production, etc.).

Cost inflation characterized by the impact of the following non-monetary factors on pricing processes.

Declining labor productivity growth and falling production . This phenomenon occurred in the second half of the 70s. For example, if in the US economy the average annual rate of labor productivity in 1961 - 1973. was 2.3%, then in 1974 - 1980. - 0.2%, and in industry 3.5 and 0.1%, respectively. Similar processes were typical for other industrialized countries. The deterioration of general conditions of reproduction, caused by both cyclical and structural crises, played a decisive role in the slowdown in labor productivity growth.

Increased importance of the service sector . It is characterized, on the one hand, by a slower growth of labor productivity compared to sectors of material production, and on the other, by a large share of wages in total production costs. A sharp increase in demand for service sector products in the second half of the 60s and early 70s stimulated their noticeable rise in price: in industrialized countries, the increase in prices for services was 1.5 - 2 times higher than the increase in prices for other goods.

Acceleration of the increase in costs and especially wages per unit of production . The economic strength of the working class and the activity of trade union organizations do not allow large companies to reduce wage growth to the level of slow growth in labor productivity. At the same time, as a result of monopolistic pricing practices, large companies were compensated for losses through accelerated price increases, i.e. The “wages-prices” spiral was deployed.

Energy crisis . It caused a huge rise in the price of oil and other energy resources in the 70s. As a result, if in the 60s the average annual increase in world prices for products from industrialized countries was only 1.5%, then in the 70s it was more than 12%.

Consequences of inflation.

The consequences of inflation are very complex and varied:

Inflation first raises prices and profit rates and thereby temporarily revives the market situation;

As inflation develops, it turns from a temporary engine into a brake, increases economic and social instability, and undermines the main factors of economic growth;

Inflation causes an uneven rise in prices for goods, disorganizes economic relations, and increases disproportions between sectors of the economy;

Distorts the structure of consumer demand, aggravates the problem of the capacity of the domestic market;

Increases speculation in goods;

Generates a flight from money to goods, aggravates commodity hunger;

Undermines incentives for monetary savings, disrupts the functioning of the credit and monetary system;

Creates tension in international economic relations;

Deepens social contradictions in society. Inflation, to a certain extent, acts as a super-tax on workers. This is primarily due to the lag in nominal wage growth from price increases.

The state regulates inflation to reduce the destructive socio-economic consequences. The instruments of state regulation of inflation include a wide range of budgetary, tax, and credit measures to influence prices and wages:

wage freezes to curb price increases;

limiting the rise in prices and money supply in circulation;

activation of credit policy;

pursuing a strict budget policy;

reduction of customs duties in order to attract cheap imported goods.

Conclusion.

No country in the world is able to function without a stable national currency. In order for people to save, invest and engage in business, they must have confidence in the reliability of the national currency. To some extent, the key to a stable national currency is effective fiscal policy, where the government ''lives within its means'', adjusting its spending depending on tax revenues.

In addition to a stable and realistic budget, there must be an efficient banking system. This requires the creation, first of all, of an effective payment and settlement system. At the same time, banks must pursue a reasonable credit policy. Banking operations must be carried out within the framework of the law and with minimal risk for depositors (laws on maximum lending volumes and on the diversification of loans must be in force; special bank deposit insurance funds must be created).

Inflation (4) Abstract >> Finance

Contents Introduction 2 Essence inflation,her kinds 3 Concept inflation 3 Inflation demand 5 Inflation offers 8 Kinds inflation 10 Influence inflation on the economy and... will need to consider the Concept inflation,her essence And kinds.The next goal is to study...

Inflation essence, socio-economic consequences and pathways her overcoming

Course work >> Economic theory

In many countries it has become chronic. Inflation, her essence and the reasons are the subject of various considerations...

As an economic phenomenon, inflation has existed for a long time. It is believed that it appeared almost with the emergence of money, the functioning of which is inextricably linked.

The term inflation (from the Latin inflatio - inflation) first began to be used in North America during the Civil War of 1861-1865. and denoted the process of swelling of paper money circulation. In the 19th century this term was also used in England and France. The concept of inflation became widespread in economic literature in the 20th century. after the First World War, and in Soviet economic literature - from the mid-20s.

The most general, traditional definition of inflation is the overflow of circulation channels with the money supply in excess of the needs of trade turnover, which causes depreciation of the monetary unit and, accordingly, an increase in commodity prices.

However, the definition of inflation as the overflow of monetary circulation channels with depreciating paper money cannot be considered complete. Inflation, although it manifests itself in rising commodity prices, cannot be reduced only to a purely monetary phenomenon. This is a complex socio-economic phenomenon generated by imbalances in reproduction in various spheres of the market economy. Inflation is one of the most acute problems of modern economic development in many countries of the world.

Types of inflation . Previously, inflation occurred, as a rule, in extreme circumstances. For example, during times of war, the government issued large quantities of paper money to finance its war expenses. In the last two or three decades, in many countries it has become chronic, a constant factor in the reproductive process.

Inflation may proceed moderately, be creeping, in which prices increase by no more than 10% per year. Economic theory, in particular modern Keynesianism, views such inflation as a benefit for economic development, and the state as the subject of effective economic policy. Such inflation allows prices to be adjusted in relation to changing conditions of production and demand.

For galloping inflation is characterized by price increases from 20 to 200% per year. This is a serious strain on the economy, although most transactions and contracts take into account this rate of price growth.

Hyperinflation represents an astronomical increase in the amount of money in circulation and the level of commodity prices. The recent record belongs to Nicaragua: during the civil war, the average annual increase in prices reached 33,000%.

The most stunning example in history is the hyperinflation in Hungary in 1946, when 1 pre-war forint (the currency of Hungary) was worth 829 octillions of new forints (a unit with 22 zeros), and the US dollar was exchanged for 3 x 10 22 (3 with 22 zeros) forints Under such conditions, enormous damage is caused to the population, even to wealthy sections of society. The national economy is being destroyed.

In many countries that experienced hyperinflation, a characteristic phenomenon was observed: the rate of price growth sharply outpaced the rate of growth in the amount of money in circulation. How can this be explained using the formula MV = PQ? It would seem that if M increased by n times, how many times should the level of P increase. However, we must not forget about indicator V. When business entities completely lose confidence in the national currency, they try to get rid of depreciating cash as quickly as possible. As a result, the speed of money turnover (V) increases enormously, which is equivalent to an increase in their quantity. The result is a catastrophic rise in prices. In this regard, it is important to once again emphasize the role of inflation expectations in unwinding the spiral of hyperinflation.

Both moderate and galloping and hyperinflation are a type of so-called open inflation. In contrast, when suppressed inflation price increases may not be observed. At the same time, the depreciation of money is expressed in shortages (lack of goods, the inability to buy them for money, for example, in government trade stores in our country) and queues.

In the 50-60s. inflation proceeded at a moderate pace in most countries. And in the 70s, it began to get out of control, disorganizing the normal course of reproduction and turning into “public enemy number one.” The inflation process became particularly acute in the second half of the 70s. Thus, the average annual growth rate of retail prices in the USA was in 1965-1967. - 1.7%, in 1966-1973. - 5.1%, in 1975 -1980. - 9.3%. In England at the same time - 3.1; 7.1 and 15.8%; in Italy - 3.4, 6.0 and 17.9%; in France - 5.0; 5.9 and 10.9%. At the end of the 1980s, the rate of price growth decreased and amounted to approximately 4% per year (in 1987 - 3.7%), which corresponded to a model of moderate inflation. This can be explained by a number of reasons, the main ones being the fall in world oil prices, increased price competition, primarily on an international scale, increased labor productivity, and curbed wage growth.

Inflation may be balanced, those. price increases are moderate and simultaneous for most goods and services. In this case, according to the annual growth of money, the interest rate increases, which is equivalent to an economic situation with stable prices.

Unbalanced Inflation refers to the different rates of increase in prices of different goods.

It should also be distinguished expected inflation from unexpected. Expected inflation can be forecast for a period, or is “planned” by the government of a country. As an example, we can cite the forecast of price growth rates on the eve of their liberalization, made by the government of the Russian Federation in December 1991.

Inflation– a decrease in the purchasing power of money due to rising prices, the reverse process of deflation.

Inflation- a process covering all spheres of the economy, which is expressed in an increase in the amount of money in circulation necessary for the functioning of trade turnover.

Inflation is a complex socio-economic phenomenon generated by imbalances in reproduction in various spheres of the market economy. Inflation is one of the most acute problems of modern economic development in many countries.

Therefore, inflation should be viewed from several perspectives:

• as a violation of the laws of monetary circulation, which causes a disorder of the state monetary system;
• as an obvious or hidden price increase;
• naturalization of exchange processes (barter transactions);
• decline in living standards of the population.

Factors, determining the growth of the inflation rate:

1. Cash:

• growth in government spending;
• increase in public debt;
• the issue of money unbalanced by the demand for it;
• an increase in household incomes in isolation from the growth of labor productivity;
• increase in the velocity of money circulation.

Non-monetary:

• monopolization of the economy;
• unbalanced economic development;
• unreasonable government regulation of the economy;
• global structural crises;
• negative balance of payments.

The following indicators are used to measure inflation:

Price index- these are relative indicators that characterize the relationship of prices over time.

Price index = Calculation year price / Base year price (1)

Retail Price Index(cost of living indicator) - shows how the price of a set of consumer goods changes based on the average price.

Inflation index:

I = (1+r) n, (2)

where I – the inflation index shows how many times prices have increased over a certain period of time;

r – monthly inflation rate;

n - number of years (months);

Types of inflation are defined in terms of factors of production. There are the following types of inflation: demand and cost inflation.

Demand inflation caused by the excess of demand over supply. The excess of demand over supply accelerates price increases. Increasing prices at constant costs ensures an increase in profits and cash income of workers. This determines the next round of increased demand, etc.

Cost inflation is caused by an increase in production costs: the costs of wages, materials, energy and prices for goods increase, supported by a subsequent increase in the money supply to their increased level.

Types of inflation depend on the rate of increase in prices:

Creeping (moderate)- up to 10% per year, corresponds to the normal development of the economy and contributes to the economy. growth

Galloping- growth rate of up to 50% per year, due to sudden changes in the volume of money supply and changes in external factors.

Hyperinflation- high rate of price growth of 50% per month, crisis in the economy and the sphere of money circulation.

Forms of inflation:

1. According to the method of occurrence:

• Administrative- generated by administratively established and managed prices (transport tariffs, sales tax is not included in the price of consumer goods);
• Imported- caused by the impact of external factors: excessive influx of currency into the country; an increase in prices for imported goods, which leads to an increase in prices for nationally produced goods;
• Credit– caused by an increase in the scale of provision of credit resources.

According to the nature of the course:

• Suppressed (hidden) characteristic of an administrative-command economy: prices are stable, but there is a shortage of goods;
• Open caused by changes in prices under the influence of supply and demand.

By degree of predictability:

• Expected– inflation growth rates are predicted in advance and determined based on an analysis of factors of the current period;
• Unforeseen- characterized by the fact that its level is higher than expected for a certain period.

Basic concepts and terms: inflation, price index, demand inflation, cost-push inflation, creeping inflation, galloping inflation, hyperinflation, anti-inflationary policy, counter-cyclical policy; monetary policy.