Inflation and its causes

As an economic phenomenon of inflation has been around a long time. It is believed that its appearance is linked almost from the emergence of money, the functioning of which is continuously connected. The term "inflation" (from the Latin. Inflatio - swelling) first began to be used in North America during the Civil War, 1861-1865gg. and refers to the process of swelling of paper currency.

The most succinct definition of inflation - the rise in the general price level, the most common overflow channels money supply in excess of the needs of trade, which causes impairment of the monetary unit.

The essence of inflation is that the national currency depreciates in relation to goods, services and foreign currency, preserving the stability of its purchasing power. Some scientists have added to this list is gold, giving it, as before, the role of the universal equivalent.

Inflation can occur sparingly be creeping, in which prices do not increase by more than 10% per year. Many modern economists believe such inflation necessary for effective economic development. Such inflation can effectively adjust prices in relation to the changing conditions of production and demand.

Galloping inflation, which is characterized by the rise in prices of 20% to 200% a year, is already a serious stress on the economy, although the prices are not difficult to predict and include options transactions and contracts.

The most disastrous for the economy hyperinflation, which is astronomical growth of currency in circulation and, as a consequence, a catastrophic rise in commodity prices. The role of money itself in such cases is greatly reduced and the population, and industrial enterprises, mostly move on to other, less efficient form of payment - such as barter. In some cases there are parallel currencies, greatly increasing the role of foreign currencies. Hyperinflation causes severe damage to the population, even the most affluent sections of society. Destroying the national economy.

Also shared by two types of inflation: balanced and unbalanced. When balanced with respect to inflation, prices rise moderately, while for most goods and services. In this case, the results of the average annual price growth rising interest rate of the State Bank, and thus the situation is equivalent to a situation with stable prices.

In the case of unbalanced inflation rates for various goods and services are rising at different times and in different ways for each type of product.

There are other types of inflation, for example, the expected and unexpected. Expected inflation can be predicted for any period of time, and it is often a direct result of government action.

Unexpected inflation is characterized by a sudden jump in prices, which adversely affects the taxation system and the money, if there is a population of inflation expectations. This situation will cause a sharp increase in demand, which in itself creates difficulties in the economy and distorts the real picture of public demand, which leads to failure in forecasting trends in the economy, and with a little hesitation government further increasing inflation expectations, which will spur the growth of prices.

Demand pull - the imbalance between supply and demand on the demand side. The main reasons for this may be an increase in government contracts, an increase in demand for capital goods at full employment and almost full capacity utilization, as well as growth in the purchasing power of workers (wage growth) due to, for example, coordinated trade union action. As a consequence, there is a surplus of money in relation to the quantity of goods, and prices begin to rise.

Cost inflation - rising prices due to increased production costs. Reasons for the increase of costs can be oligopolistic pricing policy, economic and financial policy of the state, an increase in raw material prices, the actions of the trade unions, demanding higher wages.

In practice is not easy to distinguish one type of inflation on the other, they are all closely related and are constantly interacting with each other.