An economic crisis in every country can affect not just one person or enterprise, but the entire population. The results can be detrimental to all areas of life. We propose to understand what inflation is, what are the disadvantages and advantages of the crisis, and whether it is possible to overcome it.

Inflation - what is it?

This economic term refers to the increase in the cost of goods and any services. The essence of inflation is that at this time for the same money it will be possible to buy many times fewer goods than before it occurred. It is commonly said that the purchasing power of finance has decreased and they have depreciated, that is, they were left without part of their own value. In a market economy, such a process can manifest itself in rising prices. With administrative intervention, the pricing policy remains the same, but shortages may appear for groups of goods.

What happens during inflation?

The economic crisis is gradually penetrating into various spheres of society and destroying them. As a result, production, the financial market and the state may suffer. Many countries know first-hand what inflation is. During inflation:

• finances depreciate relative to gold;
• cash in relation to goods begins to depreciate;
• money depreciates relative to foreign currencies.

This process has another meaning - raising prices, but this does not yet indicate an increase in the cost of all goods. Sometimes some stay the same while others fall. The main problem is that they can rise unevenly. When some prices rise and others fall, others may remain stable.

What does inflation depend on?

Economists say that the rate of inflation depends on:

• growth of money emission;
• growth in the speed of money turnover without taking into account the increase in their volume;
• raising the cost of own-produced products by large companies;
• reduction in production, which will entail a decrease in the quantity of goods.

What does inflation affect?

A process such as high inflation can affect the purchasing power of money, and the personal income of an individual person cannot directly depend on it. Standards of living decline when incomes are fixed. This applies to pensioners, students and disabled people. Due to the economic crisis, this category of people becomes much poorer and is therefore forced to seek additional income or reduce their expenses.

When income is not fixed, a person has the opportunity to improve his own situation in this situation. Company managers can take advantage of this. An example would be a situation where product prices rise, but the cost of resources remains the same. Thus, sales revenue will exceed expenses and profits will increase.

Causes of inflation

It is customary to distinguish the following causes of inflation:

1. Increased government spending. The government uses money emission by increasing the mass of its own needs for commodity circulation.
2. Expanding cash flow through mass lending. Finance comes from the issuance of fiat currency.
3. Monopoly of large enterprises on determining value, as well as production costs.
4. The volume of national production is declining, which may provoke an increase in prices.
5. Increase in state taxes and duties.

Types and types of inflation

Economists identify the following main types of inflation:

1. Demand – arises as a result of excess demand in comparison with actual production volumes.
2. Supply – pricing increases due to increased production costs at a time when there are unused resources.
3. Balanced – prices for certain goods remain the same.
4. Predictable – it is customary to take into account the behavior of economic entities.
5. Unpredictable – occurs unexpectedly because price increases exceed expectations.

Depending on the speed, it is customary to divide the following types of crisis:

• creeping;
• galloping inflation;
• hyperinflation.

Under the first, the cost of goods rises by ten percent per year. This moderate inflation does not threaten the collapse of the economy, but requires attention. The next one is also called spasmodic. Prices can rise from ten to twenty percent or from fifty to two hundred percent. With the latter, prices rise by fifty percent throughout the year.

Pros and cons of inflation

The economic crisis has both disadvantages and advantages. Among the disadvantages of the process:

• depreciation of funds;
• destruction of all spheres of life;
• the general standard of living of people is declining.

Everyone who knows what inflation is assures that it also has advantages. Pros of inflation:

• business activity is increasing;
• production and employment expand;
• demand for shares increases;
• There is a revival in commodity markets.

The relationship between inflation and unemployment

According to economists, inflation and unemployment have a clear relationship. This is described in the model of the famous professor of one of the English schools of economics, A. Philips. He was researching data in his country for the period 1861-1957. As a result, he concluded that when unemployment exceeded the three percent level, prices and wages began to decline. After some time, this model replaced the rate of wage growth with an inflation rate.

The professor's curve can show the inverse relationship between crisis and unemployment in the short term and the possibility of choice and compromise. In the short term, raising the cost of goods and services helps stimulate labor supply and expand production. When a crisis is suppressed, it leads to unemployment.

How is inflation calculated?

To determine the level of inflation, it is customary to use the following inflation indicators:

1. Consumer price index - reflects changes over time in the general level of cost of goods that people can purchase for their own consumption.
2. Producer price index – reflects changes in pricing policy in industrial production.
3. Core inflation characterizes non-monetary factors and is designed to be calculated on the basis of the CPI.
4. The GDP deflator is capable of displaying changes in the cost of all goods produced in the country throughout the year.

To calculate the economic crisis index, the price of goods is taken as one hundred, and all changes in future periods are displayed as a percentage of the cost of the base period. The index should be calculated every month and on an annual basis as the change in the cost of goods and services in December of the current year compared to the same month of the previous year.

Inflation and its consequences

Financiers argue that a process such as inflation can affect people's living standards. The following are the consequences of inflation:

• purchasing power of finance decreases;
• there is a significant difference between the incomes of different classes of the country’s population;
• the exchange rate of the national currency is falling;
• Citizens' trust in the government decreases.

The rise in price of certain goods is often a natural process, as it occurs due to rising wages. Hence the conclusion - it is impossible to avoid this crisis situation, but you can prepare. There is an excellent and appropriate saying in this difficult economic situation: if forewarned is forearmed.

A detailed analysis of the concept of inflation: what it is, classification, what are its features, what is its purpose, advantages and disadvantages, consequences, and how to save your money during inflation.

What is inflation

Inflation is an increase in prices for goods and services due to the depreciation and decrease in the purchasing power of the national currency. This is the result of the fact that the amount of money in circulation exceeds the needs of the population.

The essence of inflation: previously a person could buy 1 liter. milk for 30 rubles, and now the same amount will buy only 0.5 liters. That is, the quantity of goods and services on the market does not change, but more money is required to purchase and pay for them.

Inflation is not always accompanied by rising prices. The cost of some goods may increase, while others may decrease.

Inflation is an established and stable process of increasing prices. It can last for a long time. The normal inflation rate is 3%-5% per year.

Main causes of inflation

The main factors causing inflation:

• A general decline in the country's economy while maintaining the population's wages unchanged.
• Increase in printed banknotes to fill the budget deficit.
• Growth of loans among the population with insufficient external investment.
• Low labor productivity at high costs.
• Monopoly of large enterprises that independently determine prices for goods and services.
• War and an increase in the country's military spending.
• Economic crisis.

Main types of inflation

There are 4 types of inflation:

1. Up to 10% per year – moderate.
2. Up to 30% per year is high.
3. From 30% to 100% - galloping.
4. Above 100% - hyperinflation.

Let's consider them from the point of view of economists who highlight more inflation phenomena.

Administrative – formed as a result of managed prices.

Credit – expansion of credit services for the population.

Creeping – inflation proceeds slowly.

Galloping – rapid rise in prices.

Induced – appears under certain economically objective factors of inflation.

Hyperinflation is the highest rise in prices (higher than galloping).

Stagflation is an increase in unemployment, prices, and a decline in production.

Social – rising prices against the backdrop of increasing costs due to introduced social requirements for the quality of goods, services, etc.

Imported – a large influx of foreign currency and an increase in prices for imported goods.

Inflation classification

For reasons of appearance

Demand inflation – there are imbalances in the market. The state's economy is developing, but the unemployment rate remains high. The result is a rise in prices due to an increase in wages and a sharp increase in population demand.

Cost-push inflation is an increase in production costs with a subsequent increase in prices, unemployment, expenses and bankruptcy of industrial enterprises.

Structural inflation occurs when money depreciates due to the uncontrolled emission of national currency.

According to the characteristics of the course

Open inflation is a long-term, active and unlimited increase in prices.

Suppressed inflation is an increase in citizens' incomes at the same prices. Most often formed due to cruel government price controls.

According to the difference in price increases

Balanced inflation - prices for goods change synchronously.

Unbalanced inflation - prices for one group of goods rise, while prices for another remain unchanged.

By growth rate

A moderate pace is characterized by a slight increase in prices of no more than 10% per year. At the same time, there is no devaluation, the range of goods is updated, prices change smoothly and minor fluctuations in supply and demand are observed. Such inflation can be controlled by the state.

A sharp growth rate is inherent in galloping inflation and is characterized by a sharp rise in prices of more than 10% and can reach up to 200% per year. It is almost impossible for the state to manage such a process, and to get out of this situation, monetary reform is required. Galloping inflation is a sign of an economic crisis.

An avalanche-like rate of price growth is called hyperinflation. With it, the cost of goods and services grows by 50% per month, and by 100% or more per year. Poverty in the country is increasing, unemployment is rising, and the population is losing savings. Such inflation is impossible to control and leads to rising unemployment rates, shutdowns or closures of factories.

If possible, forecast inflation

Unpredictable inflation occurs suddenly due to factors that could not be foreseen.

Purposes, advantages and disadvantages of inflation

The main disadvantage of inflation, which is most acutely felt by the population, is the rise in consumer prices. This is due to the fact that manufacturers use imported materials, raw materials, and components. And since inflation causes devaluation of the national currency, manufacturers have to pay more to suppliers of imported raw materials. Accordingly, the increase in expenses must be covered with something, otherwise the company will begin to operate at a loss or earn less profit.

The advantage of inflation is that after a certain period of time the depreciation of the national currency slows down and the economy stabilizes.

Citizens who took out loans in national currency also have their own advantages in inflation - in fact, loans become cheaper, and, conditionally, a person gives less to creditors than he took.

Sellers and suppliers of household, computer equipment, and cars benefit from inflation. The demand for real estate is also growing. This is due to the fact that people are starting to get rid of cheapening money, exchanging it for large purchases.

For enterprises, inflation has its advantages and disadvantages:

On the one hand, there is an increase in the financial burden on enterprises. Most manufacturers use foreign materials, raw materials, and equipment. Costs and product prices increase accordingly.

On the other hand, companies that could not withstand inflation are leaving the market and other enterprises are increasing their market share. Organizations that produce products only from domestic materials also benefit.

Controlled inflation, expressed in a gentle depreciation of the national currency, has a positive effect on the growth of the state’s economy. Loans are starting to become cheaper, which increases consumer demand. Enterprises can increase investments in their development.

With uncontrolled inflation and sharp price hikes, consumer demand decreases, as people begin to save money, stop taking loans, and refuse a number of goods and services. The national economy is also suffering, as investors refuse to invest in it for fear of a worsening situation.

Consequences of inflation

1. Depreciation of all monetary reserves, government and household securities: loans, deposits, savings, shares, etc.
2. Creditors, sellers, producers, exporters begin to lose, while buyers, debtors and workers gain.
3. Rising prices are accompanied by devaluation.
4. Distortion of the state's economic indicators.

Inflation can be viewed in several ways.

Redistribution of national income

Inflation seriously affects the standard of living of citizens with a fixed salary and their financial capabilities. While with non-fixed incomes, people only benefit - they can ensure that their income grows faster than the growth of consumer prices.

Losses due to inflation are borne by depositors and owners of savings in national currency kept in bank accounts. They occur when interest rates are lower than the rate of inflation.

The redistribution of income between borrowers and lenders is one of the main consequences. Here, lenders bear the losses and borrowers benefit, since they receive loans at specific interest rates. As a result, people repay only part of the loan, and the rest is “eaten up” by inflation due to a decrease in the purchasing power of the national currency.

Volume of national production

With inflation, the prices of goods rise. This encourages manufacturers to produce more products and expand their range to meet the needs of all segments of the population.

If cost-push inflation occurs, production capacity falls: producers begin to produce less products and maintain production levels.

Socio-economic consequences

Inflation seriously affects the volume of national production. It leads to its decrease, factories and companies begin to close, fewer products are produced, and there is no improvement in their quality. This results in increased unemployment in the country, decreased consumer demand, and uneven distribution of income.

How to save money during inflation?

When inflation occurs, most citizens suffer. Therefore, the task of saving their savings always remains relevant for people. Nobody wants to lose their money or start living even worse. And inflation is an inevitable phenomenon in any country.

Savings

The easiest way is to save 10-11% of any income, and after accumulating a round sum, exchange the money for foreign currency. In this case, it is better to divide the savings into 4 parts and convert them into 4 different currencies. This way you can save 100% of your savings.

Gold

You can store your savings in gold. Banks can help convert currency into grams of gold. To do this, you need to open an impersonal metal deposit for a specific amount, where the bank will transfer grams of gold.

Real estate

Real estate has been and remains the best way to preserve your savings. It is enough to buy an apartment, house or land for construction. Real estate prices are constantly rising, and at the same time, human savings invested in private property, which can always be sold, are also growing.

Conclusions

Inflation is an integral process in the economy of any state. Therefore, it cannot be avoided. It has its positive and negative sides. And in order not to lose your savings, it is enough to invest them correctly: in foreign currency, gold or real estate.

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;
• unjustified 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 goods of national production;
• 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.

For goods and services. This leads to a decrease in the purchasing power of consumers. But the question of whether it is necessary to fight inflation cannot be given a hasty, obvious answer. This is due to the fact that a certain percentage of price increases is even useful for the economy, since it allows it to “accelerate” it. We will talk about this and much more in this article.

Briefly

If we talk about this in simple language, then we need to turn to everything we understand - money. What happens to them when the general price level rises? Let's say we have a salary of $100. If there is inflation, every month we will be able to buy a smaller set of products with it. Or let's look at another example. Let a pack of chewing gum cost one American dollar in 2016. If the annual inflation rate is 2%, then in 2017 you will have to pay 1.02 dollars for it. USA. Thus, this phenomenon leads to the depreciation of the country’s monetary unit.

Types

The question of what inflation is is answered as follows: it is a steady increase in the general price level. However, you need to understand that statistics on this indicator are generalized and do not take into account all goods and services. Should we fight inflation? Before answering this question, it is necessary to understand what causes it. The following types of inflation are distinguished:

• Deflation. This is a phenomenon in the economy that is expressed in a general drop in prices.
• extremely rapid price increases. It could even lead to the collapse of the national financial system. One famous example of hyperinflation occurred in Germany in 1923. Then prices grew by 2500% per month.
• Stagflation. It is a combination of high unemployment, stagnant production and inflation. Stagflation was common in industrialized countries in the 1970s when oil prices rose.

What is the reason for the increase in the general price level?

The causes and consequences of inflation have been the subject of debate among various schools of economics for many years. However, they still did not reach a consensus. However, all theories can be divided into two movements:

• Demand inflation. It is due to the fact that there are few goods, but there is a lot of money in circulation. Is it necessary to fight this type of inflation? How to do this? The main way here will be to raise interest rates. This will lead to a decrease in money in circulation. Demand-pull inflation is common in developing economies.
• Supply inflation. It is due to the fact that producer costs increase. In this regard, they are forced to increase prices in order to maintain the profitability rate of their business. Costs include not only spending on production resources. Supply-side inflation can be associated with increases in taxes or wages.

Consequences

If you ask a non-specialist on the topic, almost everyone will answer that inflation is a clearly negative phenomenon that empties wallets and worsens the standard of living. However, in reality it affects different segments of the population differently. An important factor is whether it is expected or not. Is it necessary to fight inflation if everyone is already prepared for it? Expectations offset price increases. This is due to the fact that banks have time to change interest rates, and people find a higher-paying job or discuss a salary increase with their bosses. Serious problems arise when inflation is unexpected:

• Lenders lose money and borrowers win. If inflation is high enough, it may well compensate for the interest to be paid by the latter.
• Uncertainty about the future forces companies to save money and not invest in development. This causes significant damage to business and the entire national economy in the long term.
• People who have a fixed income, such as pensioners, experience a deterioration in their standard of living due to the depreciation of money.
• If inflation in a country is higher than in others, then the goods manufactured in it become less competitive in the world market.

People often complain about rising prices, but in reality this may not be a problem. If salaries increase at the same rate or faster, then everything is fine. There is no need to think about how to fight inflation if its level is 2-3%. This is evidence that the economy is growing. If there were no inflation at all, this would be an indicator of a worsening situation.

Statistical evaluation

Now that we have talked about it in simple terms, let's move on to how it is measured. Statistical assessment of this phenomenon remains a difficult problem. The debate often revolves around which goods and services to include in the representative set. Once the basket is determined, inflation is measured based on its value in the current year compared to the previous year. In the USA the following two indicators are used:

• Consumer Price Index. It evaluates inflation from the buyer's point of view. The representative set here includes food, clothing, gasoline, and cars.
• Producer price index. He looks at inflation from a business perspective. This index takes into account changes in market prices for goods and services produced in the country.

Rosstat: inflation

In November 2016, prices in the Russian Federation increased by 5.8% compared to last year. This is less than expected. This indicator is estimated by Rosstat. Inflation for various groups is as follows:

• Foodstuffs. Inflation growth rate is 5%.
• Transport - 5.4%.
• Clothing and footwear - 7.6%.
• Recreation and culture - 6%.
• Furniture and household appliances - 5.6%.
• Alcoholic beverages and tobacco products - 8.7%.

Compared to October, in November prices increased by 0.4%. The average inflation rate in Russia for the period from 1991 to 2016 is 133.5%. The highest figure was recorded in December 1992. Then it amounted to 2333.3%. The lowest was in April 2012. During this period, the inflation rate in the Russian Federation was only 3.6%.

Control and regulation

There are many ways in which the government fights inflation. Conventionally, they can be divided into several groups:

• Methods of monetary and fiscal policy.
• Establishing a fixed currency exchange rate.
• Gold standard.
• Direct regulation of wages and prices.
• Stimulating economic growth.
• Providing subsidies and assistance to low-income segments of the population.

Learn more about the different methods

One of the methods of combating inflation is to peg the exchange rate of the national currency to another, which is more stable. However, this leads to the fact that the price level in one country begins to depend on the situation in another country. Moreover, in this case, the central bank and the government cannot use monetary policy to regulate inflation.

This method was widely used during the Bretton Woods system. At that time, the currencies of most countries were pegged to the dollar. After the 1970s, states moved to A similar situation with inflation control occurs when the national currency is pegged to gold.

Another method of combating price increases is to regulate wages and prices. It was widely used during wartime. Direct control is typical for planned economies. In market conditions, price regulation for important product groups can only be a temporary phenomenon. Any state strives to increase the rate of economic growth. To do this, it invests money in the development of production, infrastructure, healthcare and education systems. If the rate of economic growth corresponds to the increase in the money supply in circulation, then inflation does not occur. In conditions when the state no longer has any other choice, it begins to subsidize low-income citizens.

Monetary and fiscal policy

Mechanisms in this category are used most often by governments and central banks. To overcome inflation, interest rates increase and the money supply decreases. Central banks are trying to keep the increase in the general price level within 2-3%. Deflation is believed to have a detrimental effect on the economy. Higher interest rates reduce the amount of money in circulation. This leads to a drop in prices. This is the monetarist method. Keynesians believe in reducing aggregate demand through fiscal policy, that is, increasing taxation and reducing government investment.

Causes of inflationhave long been studied by economists, but this knowledge only helps to prepare for an increase in the price level, and not to prevent them. The causes of inflation can be both global economic problems of the country and natural processes familiar to every person.

Main sources of inflation. Where does inflation come from?

All goods and services that are offered to consumers at a certain point in time have their own value. At the same point in time, there is a certain amount of money in circulation that people can spend on purchasing necessary goods and services. If these two components are equal, the country's economy is stable. But in the modern world such balance has not existed for a long time. Over time, the total amount of money people need to buy certain goods and services changes—and not for the better for consumers. What is the reason for this phenomenon?

Economists point to two main causes of inflation:

1. Imbalance between money and commodity supply. Over time, people have more money, they can buy more goods and services, and this causes the price level to rise. The inequality of these components may also occur due to a decrease in the commodity mass. In this case, the amount of money in circulation remains the same, but the quantity of goods and services decreases. This leads to shortages and, accordingly, higher prices.
2. Disruption of production processes and increased costs. The cost of producing a unit of output increases, and their prices rise.

In the modern world, it is almost impossible to control the economic balance. Residents of the country have not noticed problems with a shortage of goods and services for a long time, since the number of offers is huge. But the money supply is constantly growing.

Important! Prices may rise due to an increase in product quality or a decrease in resource production at a certain point in time. Seasonal price fluctuations for certain goods and services also occur regularly. But such a rise in prices is not inflation - these are completely natural changes that are, as a rule, temporary.

Why does the money supply increase?

Money is allocated from the state budget for many purposes. Among them:

• maintenance of the army;
• payment of wages to civil servants, public sector employees, medical personnel, etc.;
• financing of government programs;
• content of the social sphere.

There are many ways to spend the state budget. All of them are planned in advance, but it is impossible to foresee all situations within the whole country. And the state has to increase spending.

Some goals, such as highway repairs, are not urgent. And if there is a lack of money, such expenses can be postponed to better times. But the state cannot defer many expenses. These include financing in case of emergencies, equipping the army for military operations, paying wages to employees when their numbers increase, and others. In this case, the printing press simply starts, resulting in “extra” money.

Another reason why the amount of money in circulation increases is the issuance of loans. After all, it turns out that the loan amount belongs simultaneously to:

Don't know your rights?

• a person who deposited money in a bank at interest;
• to the bank (it disposes of this amount at its own discretion, including issuing loans);
• a borrower who uses funds for his own needs.

Lending is a rather complex mechanism that leads to economic imbalance and affects the rise in price levels. But at the moment, issuing loans at interest has become an integral part of society. Because of this, inflation has been present in the country for many years, to which most people have become accustomed.

Sources of inflation. What are the causes of inflation?

It is quite difficult to list all the causes of inflation. Economists identify five main ones that greatly influence the economy and lead to an increase in the price level:

1. Inconsistency between government revenues and expenditures. Expenditures on weapons, increased pensions and wages for civil servants, medical personnel and public sector employees lead to a budget deficit. As a result, new money is printed and the money supply increases.
2. Investments. The government often has to make investments that were not taken into account when drawing up the budget. This could be the military industry or the restoration of housing after emergency incidents.
3. The influence of prices on imported products. When foreign goods enter the markets at a price significantly higher than their domestic counterparts, Russian manufacturers also begin to inflate prices. But compared to the background of imported goods, they no longer seem high.
4. People. Inflation is often fueled by fear that prices will rise. In this case, people begin to buy more goods than they actually need. Thus, the population gets rid of money (“dumps” it), but as a result, demand increases, which leads to an increase in the price level. Of course, one person cannot lead to large inflation in this way, but he makes his contribution.
5. A reduction in production that leads to a shortage of goods. As a result, demand exceeds supply and prices rise.

There are many reasons that lead to an increase in the price level. They can be divided into two large groups:

• causing demand inflation;
• causing inflation of costs (supply).

Causes of demand inflation. Why does demand inflation occur?

Demand demand inflation occurs due to an increase in the amount of money in circulation. People can afford to buy more goods and services, and production cannot meet the needs of the population. Or, in economic terms, aggregate demand becomes greater than aggregate supply.

The causes of demand inflation can be different:

Covering the budget deficit. When the state does not have enough money to pay for necessary goods and services, various methods are used to replenish the budget. These may be loans that affect the country's economy with a long delay. Tax policy may change, which affects people's well-being and reduces the purchasing power of the population. But demand inflation is caused by another way to cover the deficit - the issue of money (emission). When this money reaches the consumer market, both demand and prices begin to rise.

Loss of goods. Spoilage of large inventories of products leads to demand inflation. It turns out that money was spent on production, but this part of the product was gone from the commodity mass. In this case, we are not talking about damage to the milk car. More serious losses are implied. This could be, for example, a drought that reduces the yield. Money was spent on planting material, fertilizers and labor, but the goods did not enter circulation.

Increasing the velocity of money circulation. This may happen due to people's fear of losing all their funds. The population begins to get rid of money and increases the number of transactions. This leads to the depreciation of the national currency.

Excessive lending. People spend the money received from banks for their own needs. The amount of money in circulation increases, and this leads to inflation. At constant interest rates, the number of lending transactions remains virtually unchanged. The problem arises with concessional loans. This phenomenon in economics is called “credit expansion”.

Causes of supply inflation. Why are costs increasing?

Supply (cost) inflation is an increase in the prices of goods and services due to an increase in the cost of production. This phenomenon is constantly observed in our country.

The causes of supply inflation are:

• Increasing wages for employees. This may be due to staff demands or government pressure.
• Increased costs of production itself. This phenomenon is often observed when using imported raw materials. When foreign exchange rates rise, prices for all imports also rise. If it is not possible to replace imported raw materials with domestic ones in production, the cost of production of goods increases. Prices also regularly rise due to higher fuel prices and an increase in other related costs (insurance, taxes, spare parts). Prices are rising due to rising prices for electricity, services of service organizations and much more.
• Decrease in labor productivity. In this case, it takes longer to produce a unit of output. At the same time, many costs remain unchanged (wages, energy, taxes). It turns out that production costs are increasing.

As costs rise, the cost of producing a unit of output increases. This leads to reduced profits and lower production volumes. As a result, supply decreases and prices increase.

In any country (and Russia is no exception), inflation does not appear for just one reason - as a rule, several factors contribute to an increase in the price level. And quite often many of them are hidden from the population. At the same time, some factors influence the rise in price levels regularly - in this case, the inflation rate is small. But serious economic problems contribute to a more serious increase in the price level - and then the change in the cost of goods and services becomes noticeable for the majority of the population.