Types of inflation. Forms of manifestation

In the process of transition to a market economy, the importance of money has significantly increased. Questions regarding their treatment in the country are gaining relevance today in practical measures aimed at the reconstruction of the national economic complex, and in a theoretical aspect. As world experience shows, the transition to a market system is accompanied by an intensive increase in prices and an increase in the influence of inflationary factors. In such a situation, it is extremely important to give a correct assessment of what is happening. To do this, you need to understand what inflation is. Forms of manifestation, causes, socio-economic consequences of this phenomenon are discussed by various specialists at different levels. This is necessary to develop the most effective and rational market mechanisms in order to maintain financial and economic balance. Let us further consider what inflation represents: causes, manifestations, consequences.

Relevance of the issue

In the transition to a market management system, it is important to understand whether this process itself is the cause of increased inflation, or whether the potential accumulated in the previous period has gained expression in the framework of new relations. In such conditions, the possibilities of artificial deterrence are significantly reduced. At the same time, inconsistency in decision-making and the lack of thought in steps significantly aggravate the difficulties that arise, increasing the effects of inflation. The forms of manifestation of this phenomenon can be very different. Meanwhile, it acts as an inevitable companion of the long-term development of the economic system with flexible pricing. Wrong methods of dealing with it are the result of a superficial understanding of inflation factors. The forms of manifestation of the phenomenon must be studied comprehensively to develop all possible options for action to eliminate it. The government of the country should conduct a thorough analysis of the situation, comparing it with the one that took place earlier, study the dynamics of events, and forecast future problems.

The nature, causes and forms of inflation

It is believed that the phenomenon in question arose almost at the same time with the advent of money, since it is directly related to the process of their circulation. The concept of inflation and the forms of its manifestation were first studied during the civil war in North America in 1861-1865. The term was used to denote the "swelling" of money circulation. The definition was also used in France and in England. In the 20th century, the essence and forms of the manifestation of inflation, types of inflation began to be actively studied after the First World War. In Soviet science, the phenomenon began to be studied since the mid-20s. In domestic literature, the nature, causes and forms of the manifestation of inflation, as a rule, are identified with the formation of a new equilibrium between supply and demand in accordance with changing conditions. Often, when considering a phenomenon, it is made dependent on well-known categories. Inflation, in particular, is considered an excess of the amount of money in circulation relative to the cost of services and goods, leading to the depreciation of funds. In the literature, there are other interpretations of the definition. So, inflation is considered:

1. Depreciation of a unit of money, a decrease in its purchasing power.
2. The socio-economic phenomenon is the result of imbalances in reproduction.
3. An increase in the general price level in the state. It arises as a result of prolonged disequilibrium in most markets in the direction of demand.

It must be said that, regardless of the number of interpretations of the definition of inflation, the manifestations of the phenomenon in them are always reflected only partially. No definition can cover all its contents.

Inflation specifics

Forms of the manifestation of the phenomenon can be expressed:

1. Violations of the laws governing money circulation. This provokes the destruction of the state credit and financial system.
2. Hidden or explicit price increases.
3. Naturalization of metabolic processes.
4. The decline in the quality of life of citizens.

The nature and forms of the manifestation of inflation today have a number of features. The previously existing local nature of the phenomenon was transformed into an all-encompassing and ubiquitous one. The frequency of its occurrence has become chronic, and currently not only monetary, but also other circumstances act as factors of influence. Today, processes such as price increases due to different, unrelated conditions cannot proceed separately. However, within the framework of a normal market system, the forms of manifestation of inflation are reduced primarily to an increase in the value of goods and services. Here it is necessary to immediately make a reservation that when considering price increases, one should keep in mind products of the same quality. The rise in price of goods due to the improvement of its consumer properties is of a different nature. Prices are only one of the factors affecting the nature and forms of inflation.

External influence

There are 2 main categories of factors that determine inflation. The causes and manifestations of the phenomenon depend, in particular, on external influences. It, in turn, is caused by an increase in the value of imported and exported products, the exchange of foreign currency for the national, as well as global crisis situations. The latter, in particular, include environmental, energy and raw materials problems. They are accompanied by a multiple increase in the cost of materials, oil, the import of which led to a sharp increase in prices by monopolists, whose products, in turn, are exported. When exchanging national currency banks for foreign, there is a need for additional issue of banknotes. This, in turn, replenishes the circulation channels of finance and leads to inflation.

Intrinsic factors

The forms of inflation are affected by:

1. Excessive military costs. This contributes to the loss of part of the national wealth, creates additional financial demand associated with defense appropriations without the receipt of products in circulation, an increase in public debt and budget deficits.
2. Excessive investment.
3. The crisis of public finances.
4. Unreasonable increase in salaries and prices.
5. Credit expansion. It represents an expansion in the provision of bank loans in excess of existing business needs. This leads to cashless cash emissions, accelerating the circulation of funds.
   

The situation in the Russian Federation

In the domestic economic system, the phenomenon under consideration has a number of specific features. Forms of inflation in Russia depend on:

1. Return on investment. Their inefficiency affects economic growth.
2. The state of the national economic structure. The country shows a significant lag in the development of some industries from others.
3. The nature of the economic mechanism. In a centralized economy, there are no effective levers designed to regulate the ratio of commodity and money supply.
4. The state of the consumer market. With its imbalance, total deficit, the financial crisis deepens, shortcomings in the planning system and the financial turnover mechanism are revealed.

These factors are internal. Meanwhile, the level of inflation in Russia was also affected by external circumstances:

• Reduction of tax revenues from foreign trade.
• Fluctuations in energy prices and raw materials in the international market.
• Adverse conditions on individual trading floors of the world, etc.

Classification

Considering the nature, forms of manifestation, types, causes of inflation, it is necessary to separately study the types of phenomenon. The classification is carried out for various reasons. So, depending on the economic system of the country, there are:

1. Open inflation. With relative mobility and flexibility of the price signal, an increase in aggregate demand over supply is expressed in an increase in the total value of goods.
2. Suppressed (hidden) inflation. It is peculiar to economic systems with regulated prices. Forms of suppressed inflation:

• deterioration in the quality of goods;
• shortage of products;
• forced accumulation of funds;
• development of the shadow economic sector;
• activation of barter transactions.
  

There is also a classification depending on the pace of formation. By this criterion distinguish:

1. Creeping (moderate) inflation. Its rate is up to 10% per year. It is considered low. At this rate, the depreciation of funds is quite low, and transactions are made at nominal prices.
2. Galloping inflation. Its pace is limited to 10-100%. In this case, the depreciation of money occurs quickly enough. In this regard, prices for transactions are stable currencies, or the estimated rates at the time of making payments are taken into account in the prices.
3. Hyperinflation. Its rate exceeds 100% in countries with a developed economic system. In countries with fragile economies, the figure is much higher. Many economists take the value of 1000% as the working value of hyperinflation.

Next, we consider the main types and forms of inflation.

Demand crisis

It is a situation where buyers are eager to purchase more products than enterprises can produce. In this case, the form of inflation is the excess of money supply relative to the volume of goods. As a result, prices are rising. A number of factors lead to this situation:

1. Low unemployment.
2. Cash over-emission.
3. Stimulating policy of the Central Bank.
4. The depreciation of the national currency.

Low unemployment

If its level is high, then the economic system responds to an increase in aggregate demand by an increase in production volume. In doing so, inactive material and labor resources are attracted in accordance with current prices. In the course of the subsequent increase in demand, the economy approaches full employment and overcomes this level. In some industries, production capacities are fully utilized. In this regard, they can no longer respond to the continuing increase in demand for their products by expanding output. This leads to price increases.

Cash over-emission

The increase in solvency may be due to unnecessary additional issue of banknotes. Such actions are mainly related to the budget deficit and ways to eliminate it:

1. The growth of inflation is caused by the expansion of the public sector, which is accompanied by an increase in salaries to attract civil servants.
2. Funds for the payment of military orders contribute to an increase in the money supply, which is not backed by commodity volume, since the products of the military-industrial complex do not act as an object of consumer demand. As a result, there is upward pressure on prices.
3. Excessive increase in transfer payments. These include, in particular, subsidies, allowances, pensions, etc.

Central Bank Stimulus Policy

It is held when selling bonds in open markets. The interest rate is reduced due to an increase in the money supply. Moreover, the implementation of investment projects is carried out through a certain time lag. During it, a surge in inflation may occur.

Depreciation of national currency

It occurs in relation to stable foreign currency. This situation occurs if the share of foreign money in the financial aggregate M2 is quite high. When the national currency falls, this factor works similarly to additional emission. Accordingly, it can provoke inflation of demand.

Crisis supply

Such inflation is caused by an increase in production costs by 1 unit. products. The main causes of the situation are:

1. Salary increase.
2. Imported inflation.
3. Monopoly companies.
4. Administrative regulation of the economic system.
   

Salary increase

In constantly changing conditions, pressure from strong unions periodically arises on entrepreneurs with a demand to increase wages. As a result, enterprise costs for related services increase. The rise in price of production makes its expansion disadvantageous. As a result, there is a reduction in aggregate supply while maintaining or even increasing demand.

Impact of imported resources

If foreign technologies, materials, raw materials, etc. are widely used in production, their rise in price will lead to a sharp increase in costs in the country. With a simultaneous increase in prices, in such cases a reduction in aggregate production will be noted. Accordingly, the supply will decrease.

Monopolization of enterprises

All oligopolies and monopolies keep prices at the expense of under-release of goods in comparison with competitive production volume. As a result, there is an overestimation of available resources regarding their marginal productivity. In addition, the prices of goods are overstated. When distributed across all sectors of the economy, distorted cost signals at each production cycle tend to increase pricing compared to what it should be in accordance with the current level of technological development.

Administrative regulation

With private changes in regulations, vagueness of legislation, complication and adjustment of procedures for reporting and registration of companies, strengthening regulation of business areas, splitting and shortening the period of validity of licenses and other events, costs increase. The increase concerns both administrative costs in particular and transaction costs in general. This, in turn, can contribute to higher prices in the state and a decrease in legal production.

Nuances

In practice, it is difficult to distinguish between these types of inflation. For example, assuming that health care spending in the country has risen sharply. Consequently, total costs also increased, provoking inflation of demand. In cases where incentives work in the markets for resources and goods caused by an increase in solvent demand, some enterprises find an increase in their costs for fuel, materials and salaries. To maintain production, they are forced to increase the value of their products. In this case, there is demand inflation, but for many enterprises it is presented as a supply crisis.

findings

For economic entities, it is extremely important not only to correctly and comprehensively measure inflation, but also to evaluate its consequences. In this plane, structural indicators of price dynamics are of primary importance. With balanced inflation, commodity prices rise, but at the same time, the same ratio between them remains. Moreover, special attention is paid to the balance of their overall increase with the cost of labor market services. In this case, real incomes of the population do not decrease, despite the fact that previously accumulated savings are depreciated. With unbalanced inflation, redistribution of profits, structural changes in the process of production of services and goods occur. This is due to constant fluctuations in the prices of various products relative to each other. In this case, the proportions may be different. The prices of everyday products are especially intense. Typically, the lag in value growth is noted in the labor market. This leads to a deterioration in the quality of life and increased social tension. Some economists believe that the insignificant rate of price increase (3-4% / year) can stimulate the release of goods while increasing the money supply. The expansion of enterprises in this case will be more significant, the more available at the disposal of production factors. The increase in money circulation will help accelerate the payment turnover. This, in turn, will lead to increased investment activity. The increase in production will ensure the restoration of the balance between the mass of money and goods against the background of a higher price level.

Negative results

Despite some, at first glance, positive effects, inflation, even at an insignificant pace, has a whole range of extremely negative effects on socio-economic development. First of all, it narrows the motivation to work, as it undermines the possibility for the normal realization of price earnings. In conditions of inflation, the social stratification of the population is intensifying. Another negative result is that citizens have less chance of accumulation. Liquid savings are shrinking and partly becoming natural. In addition, the position of power is significantly weakening. The desire of government agencies to obtain additional funding through excessive emissions provokes increased pressure from social groups advocating for higher salaries, the provision of subsidies and benefits.