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What is inflation?

Regularly the media voiced the level of inflation in the country. The average man in the street is constantly confronted with this term, butwhat is inflation?

Under inflation is the process of depreciation of money. Translated from Latin, inflation is “bloated”. In circulation there is too much money, unsecured by proper growth of commodity turnover, the monetary unit depreciates, which inevitably leads to a rise in prices in the country.

The overall decline in prices has been called deflation (negative price increase). Such a process in today's economy is extremely rare, as a rule, it is a seasonal decline in agricultural products. For example, cereals or vegetables fall in price after harvest. Japan has become a vivid example of prolonged deflation. The annual level of deflation of this country is -1%.

The task of the state is to track the growth of inflation. At the disposal of the state there are certain measures that allow you to control inflation and restrain price increases.It should be noted that inflation is an integral part of the economy of any country, because, in one way or another, prices always change.

Types of inflation

In studying the issuewhat is inflation, pay attention primarily to its species. Depending on how much price changes occur, inflation is divided into moderate, galloping and hyperinflation.

With moderate inflation, there is an increase in prices by an average of 10%. Economists believe that this level of inflation is within the normal range and is due to the continuous increase in the money supply. The increase in the total mass of money contributes to lower prices for loans, allows production to grow, and activates investment activities. These components lead to an increase in commodity turnover, after which a relative equilibrium is established between goods and money, but already at higher prices.

With galloping inflation, prices rise from 20% to 200%. This kind of inflation is the lot of developing countries. It is extremely dangerous for the national economy and requires immediate action.

Hyperinflation has a very high price increase.Prices are growing at an incredible pace and can reach several tens of thousands of percent per year. Such a situation may arise if the government releases an excessive amount of money to cover the state budget deficit. In this case, money is often completely out of circulation, giving way to barter. The national economy is declining. The inflow of foreign currency is significantly increasing and its role is increasing in the country's economy.

Often, all these types of inflation can exist only in countries with open economies and free market relations.

The causes of inflation

1. Excessive inflation of money supply due to constant lending, but the monetary resource for loans is taken not from savings, but due to the issuance of unsecured currency.

2. Increasing state spending. To solve this problem, the government of the state is forced to resort to the issue of money, multiplying the money supply, far exceeding commodity circulation. Crisis and war years, periods when the government resorts to this unpopular measure.

3. Large monopolists are able to determine the level of prices for their goods. These are often representatives of the commodity industry.

4. Unions of trade unions that do not allow the market mechanism to establish a decent wage for the economy.

5. Reducing the volume of production in the country, which directly affects the rise in prices. There is a situation when a reduced amount of various goods and services account for the same money supply.

Ways to measure inflation

The uneven rise in prices for different types of products complicates the process of obtaining a correct assessment of the economic situation in the country. Sort outwhat is inflation, its presence or absence, price indices will help to assess the depth of this phenomenon - these are relative indicators, they are designed to correlate the price level over time.

1. The ratio of prices to the base period. This method is called the consumer price index.

2. Significantly ahead in time the previous method of calculating inflation using the producer price index method. It shows the cost of the entire production of the country, excluding value added and taxes.

3. It also clearly showswhat is inflationand what is its level in the country, the control of the excess of expenditure over income. This method is called the index of living expenses.

4. The study and analysis of asset prices. This producer asset price index demonstrates the direct effect of inflation on the enrichment of their owners. This is due to the advance of the rise in prices for the assets of the prices of goods of consumer demand and monetary value.


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