Causes of Inflation Emergence
- Disproportion among a country’s goods and money supply;
- Increasing the amount of money for large expenses;
- Mass use of currency for credit programs;
- The absence of mechanisms for regulating monopolists’ prices;
- The influence of trade unions blocking wage distribution;
- Reducing the parameters of the state’s GDP;
- A sharp increase in taxes and duties.
- The discrepancy between money demand and the commodity mass (Davig & Doh 2014);
- An excess of income over consumer spending;
- The deficiency of the state budget in conditions of need;
- Excessive investments exceeding the possibilities of the economy;
- Outpacing wage growth compared to production growth;
- Unjustified expenditure of money for short-term state needs;
- Financing the budget deficit by borrowing.
- The disintegration of the national economic structure (Nunley et al. 2016);
- Lagging development of the consumer sector;
- Decrease in the effectiveness of stable investments;
- Substantial containment of the consumption growth;
- Imperfections in the system of economic management;
- The reduction of revenues from foreign trade;
- Inter-sectorial imbalances caused by incompetent management.
Classification and Types of Inflation
- Offers do not keep up with demands (Curtis, Garin & Mehkari 2017);
- Increased growth in costs for goods production;
- Increase in the value of goods with the same proportions;
- Forecasted increases in prices for goods;
- Sudden and financially unpredictable price increases;
- Decline in production along with rising prices;
- Changing consumer strategies in favor of specific goods.
Social Consequences of Inflation
- Inflation leads to the redistribution of national income (Lim & Sek 2015);
- The depreciation of money turns into additional taxes;
- Wage growth rates are slow and sometimes unlikely;
- The number of citizens with low incomes increases;
- The possibilities of buying goods become less real;
- The state cannot subsidize important social spheres;
- Poor citizens cannot count on full-fledged support.
Relationship between Inflation and Unemployment
- The more jobs, the higher the population’s income;
- Increased demand for individual goods and services;
- Decreasing numbers of all unused resources;
- Increasing production is proportional to decreasing incomes (Khan 2015);
- Rising prices are reduced only through unemployment growth;
- Inflationary expectations significantly stimulate wage increases;
- Over time, production returns to the current level.
Influence of Inflation on Incomes
- Prices rising negatively affects purchasing power (Lim & Sek 2015);
- Imbalance between nominal and real incomes is constantly growing;
- Inflation affects the income of industrial enterprises;
- Financial transactions are often stretched over time;
- Nominal profits can quickly lose real value;
- The need to reduce time between selling and paying;
- The influence of inflation on incomes is undeniable.
Influence of Inflation on Price Policy and the Distribution of Finances
- Prices rise in proportion to the growth of inflation (Khan 2015);
- Real income of the population is taken into account;
- The level of falling purchasing power is determined;
- Customer orientation is a key and basic criterion;
- Prices are formed due to the evaluation of demand;
- Revenues of potential consumers are taken into account;
- The lack of opportunity to forecast demand in advance.
Influence of Inflation on the Country’s Economy
- The type and intensity of the economy is considered;
- Inflation takes effect after the threshold of 2% (Yesikar et al. 2015);
- It is possible to control such a mechanism;
- The regulation of supply and demand is achieved;
- The economy of the country is predictable;
- Hyperinflation has serious implications for the economy;
- The industry can degrade under the conditions of hyperinflation.
Influence on the Redistribution of National Income
- Sources of income can be constant and variable (Davig & Doh 2014);
- Inflation redistributes income among creditors and borrowers;
- Interest rates play an essential role in assessing inflation;
- Floating interest rates can protect lenders (Nunley et al. 2016);
- The consequences are severe for people with fixed incomes;
- Non-fixed incomes can increase faster than rising prices;
- Inflation stimulates the creation of more products.
Methods for Reducing the Rate of Inflation
- The behavior of market participants affects inflation (Lim & Sek 2015);
- Attempts to decrease inflation expectations of the population;
- Ensuring trust in public monetary policy to reduce inflation;
- Establishing control over cash flows within the country;
- Restrictions on the purchase of foreign currency;
- The sale of foreign exchange assets in the country;
- The reduction of government spending on social welfare payments.
Correct and Timely Calculation of the Index of Inflation
- The inflation calculation formula is used to reduce it;
- To calculate the level, the consumer price index is found (Yesikar et al. 2015);
- Prices for some types of goods are studied;
- The consumer price index is established by months;
- The time interval for the calculation is chosen;
- Goods prices are determined for an earlier date;
- Information about prices for the selected period is studied.
Additional Ways to Solve the Problem of Inflation
- The fulfillment of set goals for inflation;
- Seeking help from countries with stronger economies;
- The creation of comfortable conditions for business development;
- A significant reduction of the state apparatus;
- A policy on import substitution aimed at developing enterprises;
- The reduction of costs for the purchase of goods abroad;
- Attempts to increase export products for budget replenishment.
Curtis, CC, Garin, J & Mehkari, MS 2017, ‘Inflation and the evolution of firm-level liquid assets’, Journal of Banking & Finance, vol. 81, pp. 24-35.
Davig, T & Doh, T 2014, ‘Monetary policy regime shifts and inflation persistence’, Review of Economics and Statistics, vol. 96, no. 5, pp. 862-875.
Khan, H 2015, ‘The impact of inflation on financial development’, International Journal of Innovation and Economic Development, vol. 1, no. 4, pp. 42-48.
Lim, YC & Sek, SK 2015, ‘An examination on the determinants of inflation’, Journal of Economics, Business and Management, vol. 3, no. 7, pp. 678-682.
Nunley, JM, Stern, ML, Seals, RA & Zietz, J 2016, ‘The impact of inflation on property crime’, Contemporary Economic Policy, vol. 34, no. 3, pp. 483-499.
Yesikar, V, Mahore, RK, Dixit, S, Shivram, G, Parmar, S & Jain, C 2015, ‘A study to evaluate inflation and price rise: effect on common man’, Journal of Evaluation of Medical and Dental Sciences, vol. 4, no. 30, pp. 5172-5178.