Rus Articles Journal

Whether inflation is dangerous?

Inflation call the long growth of an overall price level. However there is a soil for the wrong interpretation of this phenomenon. Let`s emphasize that it is not about a short-term jump in prices, and about their growth throughout a certain period of time.

The indicator of rate of inflation is calculated on the basis of the prices of all goods and services realized in market economy. The basis for similar approach is made by interrelation which exists between various parts and links in economy. So, the increase in prices for energy carriers leads to growth of costs of thermal and electric energy at the primary majority of the functioning enterprises that conducts that the prices of their production (i.e., logically, on the primary majority of the goods which are in sale and the rendered services). At the same time, obviously, relative sizes (as a percentage) by which the prices of different goods will grow will be approximately equal that is connected with the fact that the price of energy grew to the same extent for all.

Though inflation is urged to give an idea actually of average growth rate of the prices in the country, it is calculated not just through summation of cost of all made goods which result then is divided into quantity of these goods (differently: arithmetic average of the prices). Actually, in view of labor input and complexity of performance of this task inflation is analyzed by means of a set of various auxiliary indicators. What?

The most known of such indicators is the consumer price index (CPI). It pays off on the basis of goods prices and the services included in structure of a conditional basket of consumer appointment. Experts in this case define those goods for which feels need (taking into account evidence-based indicators about need of each person for proteins, carbohydrates, vitamins etc.) and on which therefore the average consumer shows demand. This index, on the one hand, allows to define that impact which the increase in prices exerts on consumers, and on the other hand, indirectly indicates a situation in general in economy (an increase in prices for end products which we consume, - the last link in a chain of the possible changes in price for raw materials, for the production equipment etc. which as a result influence the price made food and nonfoods). In other words, in the center of attention of researchers at calculation of IPTs - the consumer (unlike the producer).

By analogy with IPTs the price index of the producer allowing to estimate influence of inflation on producers pays off. It is considered as a way of an assessment of growth of costs of production and shares of this component in change of level of prices for final goods and services. The price index of the producer does not consider influence of the trade margins and taxes connected with trade activity on the price of the final product. Thus, in this case economists investigate influence of an increase in prices for those who make.

A price index on capital goods (goods which are used in production: equipment, buildings of production constructions etc.) allows to estimate, the prices of the production equipment the other goods necessary for production of goods and services how fast grow.

As we see, to measure inflation - business not simple, and therefore at the solution of various tasks influence inflationary a factor it is considered through application various, considering specifics of a specific objective, indicators of growth of price level in economy.

We will note that, along with the term inflation there is a row patrimonial to it the concepts which are also concerning changes in the operating price level, but not so often catching sight to not economist.

It is such concepts as deflation (decrease in price level, i.e. term " antonym; inflation ) disinflation (delay of rates of inflation), hyperinflation (the uncontrolled increase in prices observed in the conditions of the collapse of national monetary currency it is frequent - in extraordinary conditions, for example, in a wartime).

The historic fact which, I think to you will be rather interesting: the highest rate of inflation was recorded in Hungary after World War II when for every month of the price grew on average by 198 (!) times.

Now when idea of economic essence of inflation, its measurement and some phenomena related was given it the nature, we will try to answer a question: why whether inflation is so dangerous and dangerous it actually?

On the one hand, it seems, the following picture has to turn out: an increase in prices, expressing the change in price in absolute expression (in rubles, dollars etc.) should not foretell anything bad as does not foretell it change of unit of length, units of time etc. at measurement of the corresponding sizes, and also their comparison. Let`s tell if I measure in centimeters, then I will receive size 30, in meters - 0,3; but it does not cause shocks in attempts to understand how 30 0,3 can equal. It only business of scale. So, it is supposed, has to be also with the prices: if they grow twice, then, respectively, also the price of work has to grow (differently - a salary). As a result everything is twice more expensive, but and the buyer possesses twice bigger money supply.

However in severe reality emergence of a number of problems is connected with inflation. Here the main of them.

1. Growth of price level means decrease in the real income of the population with rather fixed income (pensioners, students) which revision is usually carried out with delay and not completely reflects the current growth rate of price level and the more so its change in the long term.

2. Aspiration of labor unions to put pressure upon employers and to provide growth of a salary allowing to provide at least not decrease in the real wage (showing not that how many I received rubles for the work, and that how many goods I can on this money taking into account the existing price level to buy). It generates the next round in inflation development.

3. Rise in price of the goods made in the country for the foreign consumer (in the conditions of the exchange rate of national currency of rather foreign fixed or gravitating to that; except fixed, the exchange rate can be flexible - it depends on policy of the central bank of the country) therefore the balance of the current operations (equal to a difference between the par value of export and import of the country) decreases.

In economic literature a specific place is held by a question of inflation from the point of view of search of its most effective decision. To be fair we will notice what still universal way of fight against this phenomenon is not developed. Though different economic schools throughout history offered differing sometimes as the sky and the earth of a measure. But this habitual for economy as sciences the phenomenon which is one of consequences of those distinctions which exist between different schools in the approaches to research of economic problems applied by them.

It is known that it is the most reasonable to begin the decision with identification of the reason of this or that phenomenon. In a case with inflation all incalculable richness of possible factors of the movement of the prices can be reduced to action of 4 main up: 1) increase in demand for goods (or the subjects wishing to buy them); 2) reduction of the offer of goods (or the subjects wishing to sell them); 3) increase in the quantity of money which is in circulation; 4) reduction of demand for money supply. Therefore the government in attempt to bridle inflation has to first of all try to reveal those levers which one or all these factors discompose all economic system.

It is less to you inflationary shocks!