The essence of inflation and its varieties. The essence of inflation, its types and consequences. Impact on redistribution of national income

Introduction

There are almost no countries in the world where in the second half of the 20th century. there was no inflation. It seems to have replaced the previous disease of the market economy, which began to clearly weaken - cyclical crises. Inflation was characteristic of monetary circulation: Russia - from 1769 to 1895 (with the exception of the period 1843 - 1853); USA - during the War of Independence 1775 - 1783. and the civil war of 1861 - 1865. England - during the war with Napoleon at the beginning of the 19th century. France - during the French Revolution of 1789 - 1791. Inflation reached particularly high rates in Germany after the First World War, when in the fall of 1923 the money supply in circulation reached 496 quintillion marks, and the monetary unit depreciated by a trillion times.

The given historical examples prove that inflation is not a product of modern times, but occurred in the past.

Modern inflation has a number of distinctive features: if earlier inflation was local in nature, now it is widespread, all-encompassing; if previously it covered a larger and smaller period, i.e. was periodic in nature, now it is chronic; Modern inflation is influenced not only by monetary, but also by non-monetary factors.

Consequently, modern inflation is influenced by many factors.

The essence and types of inflation

Inflation is the depreciation of money, a decrease in its purchasing power. The term “inflation” appeared in the second half of the 19th century, migrating from the arsenal of medicine. 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. Inflation is a phenomenon of disruption of monetary circulation and is associated with various monetary factors: the issue of signs of value, the volume of money supply, the speed of money turnover, the amount of mutually extinguishing payments. It is obvious that inflation is a process caused by the interaction of two factors - price-forming 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 (suppressed). 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).

The demand-side 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.

The inflation model, caused by rising production costs, allows for 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:

State budget deficit;

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;

The 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.

Causes of inflation

Explanations for the reasons for the imbalance vary. Some economists (J.M. Keynes and his followers) explained it by excessive demand at full employment, that is, on the demand side. Others - neoclassicalists - looked for the reason in the growth of production costs or production costs, that is, on the supply side. It seems that these assessments are one-sided and the truth should be sought in the synthesis of two opposites, i.e., explain inflation from both the demand side and the supply side. Disproportions between supply and demand, the excess of income over consumer spending can be generated by a state budget deficit (state expenses exceed income); overinvestment (the volume of investment exceeds the capabilities of the economy); faster wage growth compared to production growth and increased labor productivity; arbitrary establishment of state prices that cause distortions in the size and structure of demand; other factors.

A sharp worsening of the state budget deficit in our country occurred in the second half of the 80s. From 1985 to 1989, the gap between the revenue and expenditure parts of the state budget increased from 18 to 120 billion rubles, or from 3.5 to 19% of the country’s national income. The increased deficit caused enormous harm to monetary circulation and spurred inflation.

There is also a slightly different view of the nature of inflation, which is quite natural, since inflation is an extremely complex, contradictory, and insufficiently studied process. According to some economists, inflation should be understood as an increase in the general price level in the economy. Polemicizing with this point of view, L. Heine wrote , what should not be forgotten: the prices of not only goods change, but also the measures of their value, i.e. money. Inflation is not an increase in the size of objects, but a decrease in the length of the ruler we use. He draws attention to the fact that in conditions of natural exchange (in the absence of money), we would in no way encounter inflation; a simultaneous increase in all prices would be logically impossible.

External reasons

The causes of inflation can be both internal and external. External reasons include, in particular, a reduction in receipts from foreign trade, a negative balance of foreign trade and balance of payments. Our inflationary process was intensified by the fall in prices on the world market for fuel and non-ferrous metals, which constitute an important item of our exports, as well as the unfavorable situation on the grain market in the context of significant grain imports.

Internal reasons

Let's look at them using the example of Russia.

Firstly, as a rule, one of the sources of inflationary processes is the deformation of the national economic structure, expressed in a significant lag in the consumer sector with a clearly hypertrophied development of heavy industry, and especially military engineering.

Secondly, the inability to overcome inflation is generated by shortcomings in the economic mechanism. In the conditions of a centralized economy, there was practically no feedback, there were no effective economic levers that were capable of regulating the relationship between the money and commodity supply; As for administrative restrictions, they did not “work” effectively enough. In the financial planning system, the decisive role was played by the State Planning Committee, and not the Ministry of Finance and not the State Bank, which “worked” for it, supporting planned targets with financial and monetary resources without any restrictions.

Inflation is the process of depreciation of money, expressed in rising prices. Therefore, inflation is often identified with changes in price indices.

Imagine the situation. A month ago you came to the store with a 100 ruble bill. and bought 1 kg of meat. You come to the same store today, and the seller says that for 100 rubles. will sell you only 0.5 kg of meat. This means that the purchasing power of your bill has been halved. The reason is rising prices. Double too! Therefore, a manifestation of inflation is an increase in prices.

The rise of the yen primarily undermines the storage function of money; It is unprofitable to keep depreciating banknotes for a long time. But the desire to quickly get rid of money affects its functioning as a means of circulation. In conditions of rising prices, money owners begin to spend their money not as needed, but in order to avoid losses. The expected future depreciation of money is expressed in an increased interest rate. This destabilizes the credit market and undermines the investment process. The main problem of analyzing inflation is identifying the objective and subjective in this process. A number of researchers focus on the objective nature of this process, due to reasons of a general economic nature; others, on the contrary, believe that inflation is the result of excessive government spending.

Extremists in the first group believe that price changes are not related to the amount of money; their opponents in the second group argue that rising prices are always the result of an increase in the money supply. Such a palette of views on the relationship between money and prices exists to this day.

There are three types of inflation:

1. demand-driven (monetary);
2. associated with rising costs;
3. having a structural nature and determined by the restructuring of cost proportions in the economy, in particular under the influence of PTP.

Under monetary Inflation refers to the depreciation of money as a result of the excess of money supply over the demand for money. This situation may arise due to the inadequate monetary policy of the central bank, aimed at an unreasonable increase in the monetary base. Monetary inflation can also manifest itself with high lending activity of commercial banks and the creation of excess non-cash money supply.

Factors that determine monetary inflation include:

• excessive growth of the monetary base;
• high quantitative values ​​of the money multiplier;
• dollarization and, accordingly, crowding out and depreciation of national money;
• outflow of capital from the country, accompanied by the sale of national money and the purchase of foreign currency;
• depreciation of the national currency against foreign currencies due to a negative balance of payments.

One of the reasons for the excessive growth of the monetary base may be the intensive influx of foreign currency into the country. For example, the high world price of oil predetermines high export earnings of oil-producing countries. Large foreign exchange earnings are also observed in countries with developed export industries. The growth of the monetary base in these cases is predetermined by the sale of foreign currency on the local foreign exchange market, since exporting companies make expenses and pay taxes in national currency. To support the exchange rate of the national currency, the central bank is forced to buy foreign currency and thereby increase the monetary base. This phenomenon was first observed in Holland and was called “Dutch disease.”

Inflation caused by the influx of foreign currency into a country or rising prices for imported goods is called imported inflation.

M. Friedman put forward the formulation: inflation is a purely monetary phenomenon. Therefore, he denied the possibility of cost inflation. This conclusion contradicts historical facts. For example, oil prices increased in 1973-1974. and in 1978-1981. in general, 14 times. In 1973, the oil price was $1.90 per barrel, in 1979 - $28.70 per barrel. In 1986, prices dropped to almost $10.5 per barrel, in 1998 - to $9.5 per barrel, but nevertheless were more than 3 times higher than the level of 1973. In the 1970s . Inflation rates in developed countries as a result of rising fuel prices amounted to 10-20%. Such price increases are a typical example of cost inflation.

An example of cost-push inflation is the rapid increase in wages in a developing economy. The shortage of skilled workers in advanced manufacturing is leading to persistently higher wages and overall rising costs. Cost-push inflation is also related to the broader concept of structural inflation - the process of restructuring price relations as a result of structural changes in the economic system.

The role of inflation in economic restructuring is comparable to the significance of elevated temperature for a human body suffering from influenza. If high temperatures lead to the death of viruses, then economic imbalances are eliminated as a result of inflation.

In accordance with the criterion of price growth rates, four types of inflation are conventionally distinguished:

• background, not exceeding 3% per year;
• creeping - from 4 to 10% per year;
• galloping - from 11 to 50% per year;
• hyperinflation - from 51% and higher per year. Some sources refer to hyperinflation as a 50% depreciation of money per month.

The rise in prices, which is usually called background, is in fact an expression of technological breakthroughs and the result of the acceleration of industrial growth. It can be characterized as “technological inflation” or “NTP inflation”. Trying to counteract “NTP inflation” by reducing the money supply means holding back the pace of economic development. Although artificially fueling such inflation is a dangerous policy.

Under the influence of the monetarist concept, ideas about the need to ensure bullet inflation—zero changes in the consumer price index—have become widespread among economists and politicians. In particular, such inflation began in the early 1990s. the purpose of the official policy of the monetary authorities of Canada and New Zealand. But in practice, the consumer price index reached 2%. The feasibility of achieving zero inflation has been called into question primarily due to the practical difficulties of monitoring such an indicator as the consumer price index. In addition, the achievement of this goal could be ensured by increasing interest rates, and this had a negative impact on business activity.

The features of the inflation process after the adoption of measures to limit credit were studied in the early 1980s. in France. In particular, it was found that in conditions of credit restrictions (restrictions), a significant part of companies compensate for the unavailability of more expensive loans by increasing prices for their products. In this case, rising prices make it possible to replenish the working capital of enterprises. Thus, the authorities’ desire to reduce inflation by limiting the money supply leads to the opposite results - the rate of price increase is increasing. For companies, indexation of prices for their products is facilitated by existing inflation expectations and, accordingly, the willingness of consumers to pay rising prices. This phenomenon can be described as “dear money” inflation.

A unique interpretation of the inflation process is being developed within the framework of the theory of evolutionary economics. This line of research studies the development of macrogenerations, i.e. the establishment of production and consumption of qualitatively new goods and services that constitute successive stages of economic development.

The emergence of macrogeneration as a new link in the production system is ensured by higher profitability of capital investment in this area. This allows companies that produce technologically advanced products with high profit margins to charge higher prices for the resources they use, including labor. Thus, resources are redistributed in favor of the newly emerged macro generation.

Thus, we can distinguish several types of inflation that manifest themselves in different economic conditions:

• monetary (monetary);
• cost inflation;
• structural;
• inflation of “dear money”;
• background;
• evolutionary.

In the 1960s and 1970s, when Western countries were experiencing strong inflationary processes, they actively used policies to regulate prices and incomes. Its tools consisted of a wide range of measures, ranging from voluntary cooperation between companies and the state to prevent price hikes to administrative freezing of prices and income for a long period of time.

The absence of any active actions by government bodies to influence the processes of pricing and income generation, of course, does not mean a rejection of government policy in this area. The only question is the specifics of such a policy, which is ultimately determined by what theoretical concept is taken as the basis when developing the practical activities of governments. In turn, such a choice depends to a minimal extent on the distinct preferences of government members, but is directly dependent on the characteristics of a specific economic situation. Containing the inflationary process, on the one hand, ensures an increase in investment, and on the other, allows for the stability of the national currency exchange rate.

In Western countries, issues of regulating prices and incomes have been the subject of lengthy negotiations between the government, trade unions and entrepreneurs. During these negotiations, trade unions sought to link the dynamics of wages to the dynamics of consumer prices. As a countermeasure, entrepreneurs set themselves the task of linking wages to the growth of labor productivity. In a relatively balanced economy, price and income policies are essentially in the shadows. The main form of its implementation is the participation of the state in negotiations between trade unions and entrepreneurs regarding the level of wages.

The experience of countries that made the transition from an administrative management system to a market economy shows that at the initial stage of reforms, when there is an extreme shortage of food and industrial goods, strict state control over the distribution of resources and prices has no alternative. Moreover, the implementation of such control should pursue a threefold goal: maintaining an acceptable standard of living of the population; stimulating production, especially of the most scarce consumer goods; preventing sharp jumps in prices and wages and creating a general economic situation that is as favorable as possible for business activity.

Such a policy is usually carried out in a relatively short period of time and allows, firstly, to maneuver limited material resources in order to increase the production of consumer goods; secondly, to soften social tensions for a while; thirdly, stop the wage-price spiral and bring state fixed prices and black market prices closer together. Subsequently, subject to a balanced financial policy, a transition to free prices becomes possible.

A modern method of containing inflation is inflation targeting. It is a method of conducting monetary policy that consists of setting long-term inflation targets and using the interest rate as the central bank's target.

Inflation targeting allows you to mobilize a set of variables that can be influenced by the central bank to achieve monetary policy parameters. It assumes:

• setting long-term inflation targets;
• ensuring transparency and responsibility of the central bank in conducting monetary policy;
• the influence of the central bank on the formation of long-term rational expectations of economic agents that determine investment decisions.

The essence and types of inflation

It is believed that inflation appeared almost with the emergence of money, the functioning of which is inextricably linked. The term “inflation” (from the Latin “tyayo” - swelling) refers to the process of swelling of paper money circulation. It replaced the previous disease of the market economy, which began to clearly weaken - cyclical crises. Since the second half of the 20th century, there are almost no countries left in the world where inflation does not exist.

The concept of inflation became widespread in economic literature after the First World War, and in domestic economic literature - from the mid-20s of the 20th century. 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, this definition 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, due to an imbalance between aggregate demand and aggregate supply. In other words, inflation is the depreciation of money, accompanied by a violation of the laws of monetary circulation and the loss of all or part of its basic functions.

Modern inflation has a number of distinctive features: if previously it was local in nature, now it is widespread, global; If earlier inflation covered a longer and shorter period, i.e., it was periodic in nature, now it is chronic.

Inflation is the depreciation of money, a drop in its purchasing power, caused by rising prices, commodity shortages and a decrease in the quality of goods and services. It leads to the redistribution of national income between economic sectors, commercial structures, population groups, the state and the population and business entities. Inflation is characteristic of any model of economic development, where government revenues and expenses are not balanced, and the ability of a state bank to conduct an independent monetary policy is limited. Sometimes inflation processes arise or are specifically stimulated by the state when all other forms of redistribution of the social product and national income have already been used and do not produce results.

In international practice, depending on the magnitude of price increases, it is customary to divide inflation into three types:

Moderate (creeping) - if the average annual rate of price growth is not higher than 5-10%;

Galloping - with an average annual rate of price growth from 10 to 50% (sometimes up to 100%);

Hyperinflation - when price increases exceed 100%.

Creeping inflation is typical for developed countries, where there is a slight depreciation of money from year to year, and this is recognized as an inevitable moment of the normal development of a market economy and is considered as a factor in economic growth.

Galloping inflation and hyperinflation are typical for developing countries and those transitioning from a planned distribution system to a market one. It is seen as a negative phenomenon that causes socio-economic and political tension in society.

Galloping inflation makes monetary savings pointless for the purpose of purchasing not only durable goods and distant demand, but also non-food items of everyday demand. As a result, inflation expectations are intensifying, and there is a reorientation of consumer demand for food products.

The line between the above types of inflation is conditional, but a common feature is an increase in the rate of turnover of funds, a sharp decrease in the total purchasing power of the money supply and the withdrawal from money circulation of not only small change coins, but also small paper bills.

Within the framework of hyperinflation, we should highlight superhyperinflation, in which price increases exceed 50% per month.

In addition to types, it is customary to distinguish forms and types of inflation. There are two forms of inflation:

Open (recognized by the state);

Suppressed (denied by the state).

A typical manifestation of open inflation is a general increase in commodity prices and a depreciation of the national currency.

Under the conditions of a planned distribution system, suppressed inflation is most manifested, expressed in the deficit of the economy, a decrease in the quality of goods and, much less, in the level of price increases. Artificial, administrative control of prices, which, on the one hand, are focused on the actual costs of production; on the other hand, completely ignoring demand (retail prices), which ultimately hinders the development of production, the improvement of its technical level and creates a commodity shortage. Prices regulated by the state may remain unchanged for a long time, but it is almost impossible to buy many goods at fixed prices; they are not on free sale. In this case, official and unofficial rationing arises, distribution relations are strengthened, and various “black” markets appear where goods are sold at increased prices.

The manifestation of hidden inflation is also expressed in the fact that products of lower quality and in smaller quantities are purchased for the same amounts, prices for new products rise more rapidly compared to quality, and cheaper assortment is “washed out” of trade. In the national economy, due to rising production costs and maintaining stable prices, profitability decreases and government subsidies increase.

Elements of suppressed inflation can also occur in market conditions, when the government tries to “suppress” inflation not by developing production, but by tightening the money supply and fixing the foreign exchange rate. In this case, inflation manifests itself in huge non-payments, the naturalization of economic relations, and a drop in production. To achieve a given level of inflation, the state delays payments for government orders, wages, pensions and compensation, and suspends financing of public sector sectors.

Economists consider inflation, as a rule, by analyzing the factors of price increases associated with the formation of consumer demand, with the supply of goods and services, with the relationship between supply and demand, affecting the formation of prices and factors of production. Monetary factors cause monetary demand to exceed commodity supply, resulting in a violation of the requirements of the law of monetary circulation. Non-monetary factors lead to an initial increase in costs and prices of goods, supported by a subsequent pull-up of the money supply to their increased level. Both groups of factors intertwine and interact with each other, causing rising prices for goods and services, or inflation. Depending on the predominance of factors of a particular group, two types of inflation are distinguished: demand inflation and cost inflation.

During inflation, capital moves from the sphere of production to the sphere of circulation, since there the circulation speed is much higher, which gives huge profits, but at the same time intensifies inflationary tendencies. The inflation mechanism is self-reproducing, and on its basis, the savings deficit increases, loans, investments in production and the supply of goods are reduced.

Summarizing the material considered, we can highlight the following socio-economic consequences of inflation:

Redistribution of income between population groups, spheres of production, regions, economic structures, state, firms, population; between debtors and creditors;

Depreciation of cash savings of the population, business entities and state budget funds;

Constantly paid inflation tax, especially by recipients of fixed cash income;

Uneven price growth, which increases the inequality of profit rates in different industries and aggravates reproduction imbalances;

Distortion of the structure of consumer demand due to the desire to turn depreciated money into goods and currency. As a result, the turnover of funds accelerates and the inflationary process increases;

Consolidation of stagnation, decline in economic activity, increase in unemployment;

Reducing investments in the national economy and increasing their risk;

Depreciation of depreciation funds, which complicates the reproduction process;

Increasing speculative play on prices, currencies, interest rates;

Active development of the shadow economy, its “evasion” from taxation;

A decrease in the purchasing power of the national currency and a distortion of its real exchange rate in relation to other currencies;

Social stratification of society and, as a result, aggravation of social contradictions.

Causes of inflation

A temporary disruption of macroeconomic balance is overcome by the market mechanism of management through prices, redistribution of monetary and commodity resources, and skillful policies of the central bank and the state. Inflationary processes begin with a long-term imbalance. Their intensity and the rate of price growth may vary, and the main task in this case is to prevent uncontrolled acceleration of inflation, which destroys the economy, and to minimize investor losses.

Regardless of the state of the monetary sphere, commodity prices may increase due to changes in the dynamics of labor productivity, cyclical and seasonal fluctuations, structural changes in the reproduction system, market monopolization, government regulation of the economy, the introduction of new tax rates, devaluation and revaluation of the monetary unit, changes in market conditions, impact foreign economic relations, natural disasters, etc. Consequently, price increases are caused by various reasons. But not every price increase is inflation. What can be attributed to truly inflationary reasons for rising prices?

Firstly, this is disproportionality, or imbalance of government expenditures and revenues, expressed in the state budget deficit.

Secondly, inflationary price increases can occur if investments are financed using similar methods.

Thirdly, the general increase in the price level by modern schools in economic theory is associated with changes in the structure of the market in the 20th century.

Fourthly, with the growing “openness” of a country’s economy, the danger of imported inflation increases.

Fifthly, inflation manifests itself as a result of so-called inflation expectations.

Demand demand inflation is caused by the following monetary factors:

1. State budget deficit and growing domestic debt.

2. Militarization of the economy and increased military spending.

3. Credit expansion of banks.

4. Imported inflation.

5. Excessive investment in heavy industry.

Demand inflation is caused by the “swelling” of the money supply and, in connection with this, effective demand at a given price level in conditions of insufficiently elastic production that is not able to quickly respond to market needs. Aggregate demand exceeding the economy's production capacity causes prices to rise. With demand inflation in the payment turnover, there is a certain “overhang” of excess money compared to the limited supply, which causes an increase in prices and depreciation of money.

A serious reason for the “swelling” of the money supply is the growth of military spending, when the economy is focused on significant expenditures on weapons, and for this reason the country’s budget deficit is growing, covered by the issue of unsecured money.

Foreign economic factors play a major role in the development of inflation processes. They appear when a country actively uses imported goods. In conditions of a constant exchange rate, the country experiences the impact of external increases in prices for imported goods every time. A natural increase in world prices for raw materials and energy always provokes an increase in cost inflation. The influx of foreign loans and currency has a particular impact on inflation processes, since the import of foreign currency and its purchase by the central bank increase the money supply in the country, thereby contributing to the depreciation of money and increased inflation.

Inflation can develop even when the amount of money in circulation is stable. Thus, a reduction in the circulation of goods and services with a constant mass of money in circulation causes inflationary processes, which is due to the acceleration of money turnover. In terms of economic effect, accelerating the circulation of money, other conditions remaining unchanged, is equivalent to releasing an additional mass of money into circulation.

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

1. Leadership in prices.

2. Declining labor productivity growth and falling production.

3. The increased importance of the service sector.

4. Acceleration of the increase in costs and especially wages.

5. Energy crisis.

Cost-push inflation is usually viewed from the perspective of rising prices under the influence of rising production costs, primarily rising wages. Rising prices for goods reduce household incomes, and wage indexation is required. Its increase leads to an increase in production costs, a reduction in profits, and production volumes at current prices. The desire to maintain profits forces producers to raise prices. An inflationary spiral arises: rising prices require an increase in wages, an increase in wages entails higher prices. However, in real life, national wage growth always lags significantly behind price growth, and full compensation is never realized.

Cost-push inflation can only occur if unit costs increase. However, wages are only one of the elements of price, and the production of goods also becomes more expensive due to increased costs for the purchase of raw materials, energy, and payment for transport services. An increase in material costs is a natural process due to the increase in the cost of production, transportation of raw materials and energy resources, and this will always affect the growth of production costs. A counteracting factor may be the use of new technologies that reduce unit costs.

With cost inflation, the amount of money, taking into account the speed of its circulation, is “pulled up” to the increased price level caused by the impact of non-monetary factors on the part of production and supply of goods. If the mass of money does not quickly adapt to the increased price level, problems begin in money circulation - non-payments caused by a shortage of means of payment, followed by a decrease in production and a reduction in the supply of goods.

Cost-push inflation and demand-side inflation are interconnected and interdependent; they are difficult to clearly separate. Excess money supply in the economy always generates increased demand, causing market disequilibrium in the sphere of aggregate demand and aggregate supply, which results in rising prices. Being a product of an unbalanced money market, demand inflation spreads further, affecting production and consumption, distorting consumer demand, increasing the unevenness and disproportion of the development of various economic sectors, which ultimately leads to cost inflation.

In economic theory, there is a debate about what is the root cause of inflation. Among the many approaches to this issue, two of them, monetarism and Keyesian theory, are most widespread. Representatives of monetarist theory view inflation as an exclusively monetary phenomenon, that is, as a result of an excess amount of money in circulation, regardless of the channels of its use. Representatives of the non-monetarist theory consider structural deficiencies in the economy of society to be the main causes of inflation.

Inflation is the process of increasing the general price level for services and goods.

Inflation: essence and types

These processes determine the situation when the same amount of money becomes less significant over time. That is, you can simply buy fewer services and goods with it than before. It should be noted that a small level

Inflation of a few percent is a completely acceptable process. However, when the purchasing power of money declines faster, it creates inequality of profits in different sectors of the economy, resources are redistributed unevenly, which leads to imbalance. For the population, inflation means literal impoverishment, since the price level is growing faster than incomes. There are different types and types of inflation. The latter may depend on the growth rate, on the reasons that gave rise to it, or other factors.

Types of inflation classified by growth rate

Types of inflation regarding causes

• Supply inflation. It arises as a result of production costs with insufficient use of production resources.
• Demand inflation. It is the result of an excess of demand over supply, which entails a shortage of goods and an increase in its price.

Types of inflation by predictability

Other types of inflation

• Balanced inflation - prices for various goods rise evenly.
• Unbalanced inflation - prices of different goods increase unevenly.

The uncontrolled process of price increases often leads to unfavorable economic consequences for the population, deterioration of the economic and investment climate in the country and increased social tension. The simplest means of combating inflation is the government's fiscal policy, as well as direct government intervention in price regulation and the activities of banks.

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.