Types of inflation
inflation monetary reform shock
Depending on the pace (flow rate), they distinguish the following types inflation:
1) moderate (creeping) inflation;
2) galloping (jump-like) inflation;
3) hyperinflation.
Depending on the causes of inflation, there are:
1) demand inflation;
2) cost inflation;
3) structural and institutional inflation.
Depending on the nature of the manifestation, the following types of inflation are distinguished:
1) open inflation? a positive rise in the price level in conditions of free, unregulated prices by the state;
2) suppressed (closed) inflation? gain trade deficit in conditions of strict state control over prices. It is expressed in an increase in cash.
Other types of inflation:
1) balanced inflation? the prices of different commodities change to the same extent and at the same time. Does not bear any negative consequences;
2) unbalanced inflation? commodity prices rise unevenly, which can lead to a violation of price proportions. Unbalanced inflation brings big problems to the economy and business entities. With it, there is no possibility of predicting sales of products, it is impossible to say which product will become a leader and will be in demand. There is no way to calculate the most profitable areas where you should invest. Industry ceases to develop in such conditions. In our country and in the CIS countries there is unbalanced inflation. The rise in prices for raw materials is faster than the rise in prices for the final product, the cost of one element is more than the device itself;
3) expected inflation? allows you to take protective measures. Usually calculated government bodies statistics. Does not bear any negative consequences for the economy;
4) unexpected inflation. Its appearance is impossible to calculate and predict, it appears spontaneously and cannot be controlled;
5) imported inflation? develops under the influence of external factors.
moderate inflation
Moderate (creeping) inflation (price growth of 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 money supply) is able, under certain conditions, to stimulate the development of production, 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 regulatory mechanisms economic activity, and the level of production is low and characterized by the presence of structural imbalances.
The inflationary process can develop in two main directions. If the macroeconomic disequilibrium towards demand is expressed in a constant increase in prices, inflation should be considered open. When it is accompanied by general government price controls, inflation becomes subdued.
Since inflation belongs to the category of macroeconomic phenomena, it is characterized by an increase in national economic price indices. At the same time, in any economy developed country very often there are situations when in certain commodity markets there is a decrease in prices (or, at least, a slowdown in their growth). Why is this happening? There is only one explanation - moderate open inflation does not destroy the mechanisms of the market. They continue to work, push investment, stimulate the expansion of production and supply. And if so, then the fight against inflation becomes a matter, albeit difficult, but still not hopeless.
Among the mechanisms of this form of inflation, first of all, we can single out the one associated with the deformation of the psychology of consumers and producers. Inflation causes deep, radical changes in the psychology of the acquirer. Faced with a constant rise in prices, he gradually gets used to the idea that goods and services will never fall in price and the whole point is to correctly predict exactly how they will rise in price. To such forecasts (adaptive inflationary expectations), consumer decisions are adjusted, how much of income to spend on current consumption and how much to save.
It is clear that trying to at least maintain his standard of living, the buyer will increase the current demand to the detriment of savings. By the way, this is exactly what is happening in our economy, where adaptive expectations have become one of the main reasons for real consumer paranoia and the unbridled injection of rush demand, the leading link in the inflationary mechanism. Manufacturers and merchants, counting on price increases, begin to slow down sales, hide the product, hoping to sell them more expensive over time.
DEFINITION
Creeping or moderate inflation represents a situation in a country in which the channels of money circulation are overflowing with payment marks. For this reason, inflation causes an increase in prices for products and services, as a result, the solvency of society decreases.
The term inflation economic theory appears in the 20th century, while the phenomenon of depreciation of money was observed earlier, mainly during military operations. Not any increase in prices seems to be inflation, since there is the possibility and cases of seasonal increases in prices for certain products, which is an absolutely normal situation in the market. Inflation is a long process, not a one-time event.
All world states that exist in a market are subject to inflation. It is necessary to distinguish between types of inflation. Some of them can lead to disproportions, negatively affect the economy and often lead to the collapse of the economic system.
There is also a type of inflation that has little effect on the economy and is sometimes even recognized as favorable. Inflation can be different in terms of development dynamics in accordance with the causes and forms of manifestation. In accordance with the pace of development, moderate (creeping), galloping and hyperinflation are distinguished.
If we consider moderate or creeping inflation, then it can be characterized by a slight increase in prices, which does not exceed 10% per annum. In this case, the value of money is preserved, business transactions are made at nominal prices. Galloping inflation is spasmodic and is characterized by a large rise in prices. Hyperinflation is an increase in prices of more than 50% per month and it is characterized by a strong destruction of economic relations.
Features of creeping inflation
Creeping inflation is a completely normal process for the economic condition of any state. Such a phenomenon as a constant and uniform increase in the price level can positively influence the economic and production processes. Experts believe that moderate inflation is sometimes necessary for each state.
For example, during creeping inflation, there is an improvement in technology, through which enterprises have the opportunity to produce more functional products, unlike analogues. This product improvement requires certain costs due to the increase in the price level of the final product. At the same time, the buyer has a choice: to purchase expensive products with distinctive features or save money and choose a budget option.
Creeping inflation can be characterized by an increase in prices of no more than 10% per year. For some countries Western Europe price growth is 3-4% per year, which is considered normal. Moderate inflation is unable to affect the quality of life of society, does not reduce the purchasing power of the consumer. In most cases, employers can increase wages, which is why a slight increase in prices does not hit the pocket. But for private businesses, a gradual increase in prices is extremely important in order to successfully operate and develop in the future.
Benefits of Creeping Inflation
With moderate inflationary processes, there is an increase market value housing, which gives an incentive for market participants to invest in real estate and construction. Creeping inflation increases prices gradually so that lovers of buying do not immediately save money.
Moderate inflation promotes development industrial relations and improvement of finished products. Many companies are investing Money in various industries and projects, which also has a positive effect on economic life countries.
In addition, a decrease in purchasing power has a positive effect on debtors. If you do not take into account the accrued interest, then inflation greatly eases the debt burden. The borrower borrows a certain amount, after a certain time the purchasing power decreases, making it easier for him to repay.
1. Creeping inflation - expressed in a gradual long-term increase in prices, when the average annual rate of price growth is 5 - 10% (normal inflation). Stimulates entrepreneurial activity.
2. Galloping inflation - inflation in the form of a jump in prices, when the average annual rate of price growth is from 10 to 200%.
3. Hyperinflation - inflation with very high rates of price growth, when the price increase exceeds 200% per year. The IMF accepts a 50% rise in prices per month for hyperinflation.
Inflation is characteristic of paper money because state can easily print more paper money to cover his expenses. If inflation exceeds 10% per year, it has a detrimental effect on the economy because undermines investment incentives. Prices of investment goods are rising faster than the time for which you can master capital investments. Money depreciate and realize investment project impossible. During this period, the speculative business grows.
Causes of inflation. Economists distinguish between two main types of inflation.
1. Demand inflation. BP > than AS. More money than Goods → rising inflation. (The economy sometimes tries to spend more than it can produce. The business sector is unable to respond to this excess demand with an increase in real output, since all available resources are already fully used. This excess demand leads to a rise in prices for a constant real output and causes demand inflation).
The relationship between BP, on the one hand, and output, employment, and price levels, on the other, is not so simple. Rice. 2. The price level and employment will help us figure it out. (see Fig. 5 AS curve from topic No. 12).
Section 1. GDP nominal and real GDP grow at the same rate, the price level is constant. The total expenditure (C+Ig+G+Xn) is so small that nominal GDP falls far short of its maximum level at full time resources (GDP potential). Unemployment is high and much of the production capacity is idle. BP → to AS (GDP) → unemployment rate ↓, and the level of prices for products and resources (s/n) does not grow (or grows, but not significantly) due to the prevailing circumstances.
Section 2. Nominal GDP is growing faster than real GDP. Therefore, the former must be deflated to determine the real output. Prices for products and inputs (w/n) begin to rise even before full employment is achieved. (BP → to AS (GDP) → unemployment rate ↓, and the level of prices for products and resources (w / n) begin to grow even before full employment is achieved, since the amount of available resources in the economy is gradually decreasing and entrepreneurs are forced use either less suitable resources whose productivity is lower, or compete with each other to attract the required resources → to resource prices (w / n) → to production costs, ↓ PT → to product prices. Inflation that occurs on this segment is sometimes called premature inflation, because it begins before the establishment of full employment in the economy.
Section 3. Nominal GDP begins to grow at a rapid pace, while real GDP does not grow → to inflation. In this segment, firms are unable to respond to BP by increasing AS, since all resources in the economy are already involved. Real GDP = potential GDP, further BP → to prices. Inflation may begin to grow at a high rate, since BP is much higher than AS.
2. Cost inflation or supply inflation. Occurs when factors such as excessive wage increases and rapid increases in raw material prices increase production costs per unit. production → to ↓ profit and the volume of production that the firm is willing to offer at the current price level → ↓ AS → to the price level. Therefore, under this scheme, the increase in production costs pushes prices up, and not demand pulls them along, as happens with demand inflation. This type of inflation leads to stagflation - a simultaneous increase in inflation and unemployment against the backdrop of a decline in production. The excess of average costs reduces the profits of firms, this leads to a decrease in output and a decline in AS.
The two main sources of cost inflation are nominal wages and prices for non-labor resources (raw materials, energy).
Inflation caused by the growth of wages. Source: trade unions.
Inflation caused by a violation of the supply mechanism. The reason for the increase in production costs, and hence the price of products in a sudden increase in the cost of raw materials and energy.
Demand-pull inflation and cost-push inflation are interrelated. In practice, they are difficult to distinguish. The difference between them lies in the following. Demand-pull inflation continues as long as there is an excess of aggregate spending. Cost-push inflation automatically limits itself, i.e. it gradually disappears. Due to the decrease in supply, real GDP and employment are reduced, and this prevents further growth in costs. In other words, cost-push inflation generates recession, and recession in turn reins in additional costs.
Structural inflation- arises in an economy in which some industries constantly underproduce products, i.e. there is a shortage → rising prices for these products → rising prices for products of other industries.
Imported inflation- inflation caused by external factors, such as excessive inflow into the country foreign exchange and rising import prices.
credit inflation- inflation caused by excessive credit expansion.
Inflation manifests itself in the following forms:
1. Open - occurs when the market price mechanism operates freely. Rising prices of consumer and investment goods. The forms of open inflation include demand-side inflation, cost-push inflation, and structural inflation.
2. Hidden (suppressed) inflation - typical for the administrative-command economy, where prices are controlled by the state. With suppressed inflation, the market is always scarce, and a shadow market appears. The entrepreneur loses the incentive to produce a quality product, they do not have real information about the consumer's reaction to their product.
This is an excessive increase in the amount of paper money in circulation or the amount of paper money in circulation compared to the real supply of goods.. Inflation is the result of macroeconomic instability, when aggregate demand exceeds aggregate supply.
Causes of inflation: 1. The total volume of goods that can be purchased for the available in this economic system the money supply may grow more slowly than the money supply, or even decrease - in this case, the cost of goods increases, and the value of money decreases. 2. The ratio of the volume of goods and the volume of money is not directly related, but taking into account the speed of circulation of the money supply in this system.
Distinguish: 1.open inflation: unrestrained, free and continuous rise in prices. Open inflation is characterized by macroeconomic disequilibrium towards demand, in which the real value of money falls. Types of open inflation: Demand inflation - generated by excess aggregate demand compared to the actual volume of production (Product shortage). 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 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- 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).
Hidden inflation (suppressed): the state establishes strict control over prices in conditions of commodity shortages.
Depending on the growth rate, there are: creeping(moderate) inflation(Price growth less than 10% per year). element of the normal development of the economy, since 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. Galloping inflation(annual price increase from 10 to 50%). Dangerous for the economy, requires urgent anti-inflationary measures. Predominates in developing countries. Hyperinflation: by 500-1000% or more per year. (prices are rising at an astronomical rate, reaching several thousand percent per year, or over 100% per month). Paralyzes 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 breakdown of their economic structure. Hyperinflation is singled out as a separate type, since it means the almost complete collapse of commodity-money circulation and financial system countries due to the refusal of market participants to recognize banknotes their natural role in the economy (as measures of value, means of circulation, means of accumulation, means of payment). This is due to the loss of confidence in money.
Expected inflation can be predicted for any period, or it is "planned" by the rights of the country. Unexpected inflation It is characterized by a sudden jump in prices, which negatively affects the money circulation and the taxation system.
Effects: In conditions of inflation, the savings of the population are depreciated, the losses are borne by banks and institutions that provide loans. The damage from inflation is suffered by all categories of employees, freelancers, pensioners, whose incomes decrease or increase at a rate less than the rate of inflation.
anti-inflation policy. The state is pursuing a revenue policy - curbing cost-push inflation, which provides for government control over wages and prices. The state limits monopolistic activity in the field of pricing. In this case, the government takes control of monopolistic price increases.. The regulation of price policy becomes effective also thanks to the skillful monetary policy Central Bank. Deflationary policy (demand regulation) is one of the directions of anti-inflationary policy. It includes a number of methods to limit effective demand through the financial and monetary mechanism. In order to reduce the flow of excess money into circulation, the state budget expenditures are reduced, primarily for subsidies to enterprises, social services. needs, infrastructure, the needs of the military-industrial complex. In order to withdraw from circulation the excess money that came there earlier, it is widely used increased tax pressure on income. An important instrument of deflationary policy are direct limitation of the issue of cash into circulation. Implementation of anti-inf. policy is associated with certain difficulties, because it strengthens the social. tension in society, causes a threat economic downturns and a decrease in employment. Therefore, governments often have to maneuver, quickly changing deflationary methods to inflationary ones. The universal method of fighting inflation is to contain the active monetary the mass directed to the purchase of goods, and the increase in goods and services sold for money, which were previously free, an increase in the production of certain goods.
Inflation- an increase in the general level of prices for goods and services. With inflation, for the same amount of money, after some time, it will be possible to buy fewer goods and services than before. In this case, we say that in the past tense purchasing power money decreased, money depreciated - lost part of its real value.
Causes of inflation.
AT economics There are the following causes of inflation:
- Growth public spending for the financing of which the state resorts to money issue, that is, it increases the money supply beyond the needs of commodity circulation. It is most pronounced in war and crisis periods.
- Excessive expansion of the money supply through mass lending, and financial resource for lending, it is taken not from savings, but from emissions of unsecured currency.
- The monopoly of large firms on the determination of prices and their own production costs, especially in the primary industries.
- Union monopoly that limits opportunities market mechanism determine the level of wages acceptable to the economy.
- Reduction in real volume national production, which, with a stable level of money supply, leads to an increase in prices, since a smaller amount of goods and services corresponds to the same amount of money.
Types of inflation.
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.
- Galloping inflation(annual price increase from 10 to 50%). Dangerous for the economy, requires urgent anti-inflationary measures. prevails in developing countries.
- Hyperinflation(prices are growing at an astronomical rate, reaching several thousand and even tens of thousands of percent per year). It arises due to the fact that the government issues an excess amount of banknotes to cover the budget deficit. Paralyzes the economic mechanism, with it there is a transition to barter exchange. Usually occurs during war or crisis periods.
Also use the expression chronic inflation for long-term inflation.
The opposite process of inflation is deflation - a decrease in the general level of prices. AT modern economy rare and short-term, usually seasonal.
Consequences of inflation.
1. Redistribution of monetary resources in favor of individuals.
2. Violation of normal socio-economic relations in the country.
Creditors, savers, entrepreneurs and people with a fixed income suffer from inflation.
The state, borrowers and people with non-fixed income gain from inflation.
In the course of particularly strong inflation, as, for example, in Russia during the Civil War, or Germany in the 1920s. money turnover may give way to barter in kind.