What is inflation in the country's economy? To answer this question, we must first deal with what constitutes a phenomenon in the general sense. In science, inflation is understood as inflation of something (lat. Inflatio - "inflation"). In the economy, inflation is a sustainable process of depreciation of money associated with the formation of an excess of money supply relative to the volume of output. Most often manifested in rising prices for goods and services. Moreover, prices during inflation rise for most of the products, although some products may at the same time become cheaper. This is the short answer to the question of what inflation is in the economy. The depreciation of money is manifested in a decrease in their purchasing power. It is important to distinguish a short episode of price increases, which is not inflation, from long-term and steady growth associated with systemic problems in the economy. The article also provides a detailed answer to the question of what inflation is in the country's economy and how it manifests itself.
The role of slow inflation
Inflation is considered an unfavorable economic process, but a slight gradual increase in prices may be a sign of economic recovery. In most countries of the world there is some inflation and very rarely the opposite process occurs - deflation. The dollar is also gradually depreciating, although this process is very slow.
Causes of the phenomenon
The causes of inflation in the economy can be very different. Nevertheless, economists identify the most common of them:
- An increase in the money supply in the country when the output of notes is growing, and the volume of production and services remains the same. Salaries and other payments grow only in nominal terms and are completely (or partially) “eaten up” by rising prices.
- Collusion of large companies wishing to make more profit at the expense of buyers.
- The spread of mass lending.
- The depreciation of the national currency, especially against the background of a large share of imported goods.
- Increase in taxes, excise taxes, duties.
- Lack of supply in high demand.
Types of Inflation
According to the rate of price increase, inflation is divided into:
- Creeping when the annual price increase does not exceed 10%. It is a normal occurrence for many countries and sometimes even useful for the economy.
- Galloping inflation. With this type of price increases by 10 - 50% per year. It is characteristic of crisis periods and is often observed in developing countries. It has an adverse effect on the country's economy.
- Hyperinflation. With it, prices can rise by hundreds and thousands of percent per year. It is connected with a huge budget deficit. At the same time, too much money is issued. Hyperinflation is fatal for the country's economy. In Russia, this type of inflation took place in the 90s of the 20th century and testified to the collapse of the former Soviet economy.
Explicit and hidden
Also, "price inflation" is subdivided according to other criteria. The most significant is the division into 2 types of inflation in the economy: open and hidden. The first is the classic version, which is manifested exclusively by rising prices for goods and services. It is easy to track and research using statistical methods. However, the state and manufacturers are not always interested in price increases.
The presence of price regulation in a recession cannot go unnoticed. After all, the law of conservation of matter and energy has not been canceled. And if it is broken somewhere, then it’s definitely not in the economy. And if prices remain constant, and salaries and pensions do not decrease, then in the conditions of a decrease in the volume of production or import of products (against the background of a recession in the economy), or with an increase in salaries against the background of a constant volume of production (with stagnation), a commodity shortage can easily arise. This means that theoretically a person will be able to acquire as much as his monetary savings allow, but in fact it will not be easy to do. The number of stores will be reduced, goods will quickly be sold out, and queues will appear. Such a picture was occasionally observed during the USSR. This is not to say that the economy did not grow then. However, it was clearly skewed and focused on the military sphere and heavy industry. A large number of construction projects could not but affect the remaining segments of the economy.
And what will happen if at the same time you try to regulate both commodity shortages and prices, that is, to set a goal in such conditions to prevent either one or the other? We have been observing the answer in recent years. A large number of fakes, low-quality goods and products, a decrease in the share of expensive brands of products in favor of cheaper and lower-quality ones. Thus, we either have a shortage of goods (as was the case in the USSR), or a reduced quality of products, or a rise in price (as in the 90s), or mixed options (as now), or a stable, healthy, balanced economy and the absence of all these problems. It is the latter option that is the guideline that our country should strive for.
Moreover, without reducing glaring inequality in income (according to some sources, we are already in first place in the world in this indicator!), When only 5% of the population owns the main share of capital, and the rest get pennies, it is hardly possible to improve the economy. After all, the fall in the purchasing power of the population, which is its direct consequence, directly affects the income of mass-producing companies. And this means that they can no longer afford to produce the volume of good quality products that they produced earlier. Moreover, this will not make any sense to them: they will not be sold out anyway. This, in turn, stimulates inflation associated with a decrease in product quality. The increase in taxes and fees also contributes to "price inflation".
Demand inflation
This type of price increase is due to rapidly growing demand, when production is far behind it. The result is an increase in prices, revenues and profitability of enterprises. Following the growing demand, the expansion of production begins, the increase in demand for labor and natural resources. As a result, over time, a balance can be achieved, and prices normalize.
Supply Inflation
In this form, demand remains unchanged, but supply drops. This can happen when the country is highly dependent on imports of raw materials, which can rise in price (for example, due to the depreciation of the national currency). This will cause an increase in the cost of production, which may provoke an increase in prices for it for the population. An increase in production costs is also possible if taxes are raised for manufacturing companies.
How inflation affects the economy
- Inflation is bad for the banking system. When it is observed depreciation of cash reserves and securities.
- Redistribution of citizens' incomes: someone is getting richer, but most are poorer.
- The need for indexation of salaries and social benefits. But it cannot always cover inflation.
- Distortion of economic indicators (GDP, profitability and so on).
- Depreciation of the national currency relative to others, which reduces the economic position of the state in the world.
- The need to quickly increase production to combat inflation.
Thus, the impact of inflation on the economy is quite significant.
2018 inflation in Russia
According to the Federal State Statistics Service, for the first 7 months of 2018, the inflation rate in the country's economy was 2.4%. The lowest values of price increases were observed for food products - by 1.3%. Most fluctuate prices for fruits and vegetables. This may be due to unstable crops and the short shelf life of these products. The range of fluctuations reached 13.7%.
Smaller, but higher than average, price fluctuations for paid services. Here the value of price jumps is up to 3%. Significantly increased gasoline this year.
Inflation forecast in the Russian economy
According to the forecasts of the Central Bank, the average level of price growth in the country in 2018 should have been from 3 to 4%. One of the reasons for accelerating inflation was the weakening ruble. The beginning drop in oil prices, obviously, exacerbated the situation. According to the Federal State Statistics Service, annual inflation as of November 12 was already 3.7%. Therefore, the figure of 4% may even be underestimated. As a result, the inflation forecast from the government will be exceeded. Especially with a further drop in oil prices.
The September forecast from the Central Bank gives more plausible inflation figures for 2018 - from 3.8 to 4.2%. Based on the latest data, the top digit is more realistic than the bottom.
Another negative news is a decrease in the forecast for GDP growth in 2018 - from 1.5 - 2% to 1.2 - 1.7%. Moreover, the practice of our country shows that GDP growth is in no way associated with an increase in household incomes, which (on average) are still declining.
In fact, inflation may turn out to be even higher, since when calculating it, only the largest cities of the constituent entities of the Russian Federation are taken into account. However, in smaller settlements, the inflation rate is usually higher. It should also be borne in mind that for certain categories of goods, price increases can go at a faster pace. At the same time, the inflation rate calculated on the basis of data from Internet users was significantly higher than the official figures.
2019 inflation forecast
The situation in 2019 is forecasted even less rosy. One of the reasons will be the planned increase in VAT. According to the forecast of the Central Bank, in 2019 the price increase will be 5 - 5.5%. According to E. Nabiullina, it can reach 6%.
What does the population think about inflation in the country
Many citizens believe that the inflation rate in the country is higher than the figures given by Rosstat. Also, the population suggests that the price increase in 2019 will be more than according to official data. This is evidenced by a survey conducted by inFOM. So, for the next 12 months, residents predict an increase of up to 10.1%. The reason for such negative sentiment is the depreciation of the ruble, which may be associated with a subsequent increase in prices, at least for imported products.
Another reason for negative expectations is the increase in the cost of gasoline. The upcoming increase in VAT by citizens is also not inspiring. As a result, inflation expectations are quite high.
At the same time, as of the end of September, the level of inflationary expectations of the population is quite stable. This was announced by the deputy head of the monetary policy of the Central Bank A. Lipin. In his opinion, if the situation in the economy does not worsen, then the level of inflationary expectations may decline.
