1.2 Reasons for the origin of inflation and its consequences

Modern inflation has a number of distinctive features: if earlier inflation wore a local character, now ubiquitous , all-encompassing , and if she had covered a larger and a smaller period, ie had periodic character, but now it has grown into chronic. Inflation has become a constant factor in the reproduction process . Inherent in the phenomenon of inflation to some extent any market and transition economies , including the economies of industrialized countries.

The first example of hyperinflation can be attributed to the period of the early Middle Ages in China, when there was a process of displacement, bronze money cheaper in production of iron , but retains the same denomination . According to historical chronicles, even went so far that during the reign of Putun ( 520-527 gg.) It was decided to completely stop the circulation of copper coins and cast iron coin only . By the time of Datong ( 535-545 gg.) And later throughout piled mountains of iron coins, and the prices of commodities have soared . Merchants carried coins , shipping them to the cart, and not being able to count them , scored only a bunch of coins.

Stimulated the development of inflationary processes , mainly the purely monetary factors , rather than to changes in the value of the goods . Inflationary processes , due to the need for redistribution in favor of the state or the individual sectors of the economy , took place before the introduction of paper money (" damage " can ) , but the extent of inflationary redistribution were modest. Periods of large-scale increase in prices , often coincides with the time of protracted wars and social upheaval , followed by periods of stabilization or reduction ( inflationary wave ) . In the long term, the price movement of a fairly high stability.

Inflation directly affects the interests of everyone. Intriguingly mysterious , deceptively accessible and attractive so the problem of inflation generates a lot of superficial judgments.

The term "inflation" ( from the Latin inflatio - swelling) first began to be used in North America during the Civil War of 1861-1865 . and outlined the process of " swelling" of paper currency . In the XIX century . this term is also used in England and France. Widespread in the economic literature, the concept of inflation has received in the XX century after the First World War, and in Soviet economic literature - from the mid 20s .

Definition of inflation :

- Inflation - the depreciation of paper money as a result of their release into circulation in excess of the needs of turnover , accompanied by rising commodity prices and a fall in real wages 2 ;

- Inflation - is the rise in prices caused by the overflow of money , paper money circulation areas beyond their normal needs 3 - Inflation - is to increase the general level of prices in the country , arising from a prolonged disequilibrium in most markets in favor of the demand 4 - Inflation - is socio-economic phenomenon generated by imbalances reproduction 5 - Inflation - a multifactorial phenomenon , caused by the action of a number of reasons , leading to an increase in production and social disparities affecting the price in the direction of increasing 6.

However, it should be noted that , no matter how many definitions of inflation, none of them can not cover all content of inflation as economic phenomena . They only reflect its features. Painful inflation practice highlights the complexity of the phenomenon of incompleteness of theoretical developments , while not giving clear answers to many questions , so the debate continues .

Definition of inflation as an overflow channel of monetary circulation depreciating paper money can not be considered complete. Inflation , although it manifests itself in the growth of commodity prices, can not be reduced to a purely monetary phenomenon. It is a complex social phenomenon generated by imbalances reproduction in various spheres of the market economy .

Causes of inflation also need to look at three kinds of monopolies :

1. State monopoly on printing money ;

2 . Trade union monopoly ;

3 . Monopoly of large companies to determine their own prices and costs. These three types of monopolies are interconnected and each of them can disturb the balance of supply and demand. Causes of inflation may lie outside the state, they should also be sought in world trade .

In the states of pre-capitalist era of the main causes of crises ,

characterized by inflation, were : a) treasury embezzlement in connection with wars, troop costs ruling parties and the state apparatus , b) crop failures for several years in a row. Such crises caused by extreme state budget deficit and shift the national economy to meet the needs of the military , shocked many countries participated in the first and second world wars.

With the emergence of markets for goods, capital, labor, scientific, technical and socio-economic development has been periodically interrupted by crises caused by a violation of reproductive and interbranch proportions . In this case, inflation is due to lag growth of consumer services and more private investment imbalances affecting the commodity- money ) balance . Our economy is commodity- monetary imbalances and disparities industries were always inherent . Military crises are characterized by an open and a strong violation of the proportions in favor of military supplies and a clear source of inflation in the form of government to cover the issue of military spending .

Effects of inflation : The two most important sources of inflation caused by rising costs - the increase in nominal wages and prices for raw materials and energy. Inflation caused by rising wages, is a kind of inflation caused by rising costs . Under certain circumstances, can become a source of inflation unions . This is explained by the fact that they are to some extent exercise control over the nominal wage by collective agreements. Suppose that large unions demand and achieve a large pay raise , then they will stop this rise in new standard wage workers who are not union members . If wage increases across the country is not balanced by any countervailing factors such as the increase in output per hour of production , it will increase the cost per unit of output . Manufacturers respond to this reduced production of goods and services being poured into the market. At a constant demand this reduction proposal would lead to higher prices . This type of inflation is called inflation caused by higher wages.

Inflation caused by a violation of the mechanism proposal is the result of increased production costs , and therefore prices , which is associated with a sudden , unexpected increase in the cost of raw materials or energy costs. In the real world, the situation is much more complicated than a simple division into two types of inflation - inflation caused by increasing demand and inflation due to rising costs . In practice it is difficult to distinguish between these two types. Most economists believe that inflation due to rising costs , inflation and demand differ in another important respect. Demand inflation continues as long as there are excessive overall costs. Inflation caused by rising costs automatically restricts itself , ie either fades or self-limiting . Inflation caused by rising costs generates a decline , and the decline in turn inhibits further increase in costs. The very fact of inflation - reducing the purchasing power of the monetary unit , ie reducing the amount of goods and services that can be purchased for this monetary unit - does not necessarily lead to a decrease in real personal income or standard of living. Inflation reduces the purchasing power of the monetary unit , but your real income or standard of living will decline only if nominal income will lag behind inflation.

Inflation punishes people who receive relatively fixed nominal income . In other words, it redistributes income , reducing their fixed income recipients and increasing them from other groups. The classic example is a mature wife living on a private pension or annuity , which provide a fixed monthly amount of nominal income . Inflation also worsen the plight of landowners receiving fixed annuity , because over time they will receive monetary units having a lower cost . To a lesser extent the victims of inflation will be some white-collar workers , part of the public sector , revenues are determined by a fixed pay scale , as well as living on fixed income of social security and other transfer income families. People living on fixed income , can benefit from inflation. Nominal income of these families can beat the price level or cost of living, resulting in their real incomes increase. Workers in developing industries and presented powerful unions can achieve to their nominal wage kept pace with inflation or preceded him . On the other hand , suffer from inflation and some salaried workers , those who work in unprofitable industries and deprived of the support of strong, militant trade unions , may find themselves in a situation where the rise in prices will surpass the growth of their cash income . Profit from inflation can get control of firms, other recipients of profits. Inflation may also jinx savers . With rising real value or purchasing power of savings set aside for a rainy day is reduced. During inflation reduces the real value of fixed deposits in the bank insurance policies , annuities and other paper assets with a fixed cost , which once was enough to cope with the severe contingencies or ensure a peaceful retirement .

In terms of " inflationary expectations " entrepreneurs strive to protect themselves from risk, particularly from the anticipated growth in the prices of imported goods (raw materials , fuels and accessories) . To avoid losses caused by the depreciation of money , manufacturers, suppliers, intermediaries raise prices , thereby spurring inflation. Why be afraid of inflation? Going out of control and even remaining relatively weak , adjustable , it has on the course of economic development a complex purely negative , negative influences. Note briefly only some of them . Inflation ( and it is generally accepted ) narrows motives to work, because it undermines the normal implementation of price earnings. Inflation, especially in conditions of significant price increases, increases the social differentiation of the population , the gap between "extreme" groups of income recipients . Negative function of inflation is also in that it reduces the possibility of accumulation. Savings in liquid form are reduced, partly take the natural form ( buying real estate). The ratio between the power consumption and saves parts revenues shifted toward consumption. Issue of securities often does not reach the desired goal , because is not able to "link" the money from the public. Inflation weakens the power structures. The desire to get public authorities by issuing additional funds to address urgent problems has the effect of rising discontent , increased pressure from various social groups in order to increase earnings , additional incentives and subsidies. Reduced confidence in the programs and activities , the planned and carried out by the government. Public reaction to the deteriorating conditions in the consumer market , in the production often takes quite acute.

Negative effects of inflation include:

- Decline in real income ( in case of uneven growth in nominal incomes );

- Impairment of household savings ( percent increase in deposits, as a rule, does not compensate for a decline in real size savings) ;

- Loss of interest from producers in the creation of real goods ( increased production of low-quality goods , reduced the production of relatively cheap goods);

- Increased disparities between industrial and agricultural products;

- Restricting the sale of agricultural products due to reduced interest in anticipation of rising food prices ;

- Deterioration of living conditions mainly with the social groups with solid income ( pensioners , civil servants , students, whose revenues are the state budget ) .