The essence of inflation. Causes of its occurrence

Inflation is a serious threat to the macroeconomics of any country. The destructive effect of this phenomenon grows like a snowman, and if no countermeasures are taken in time, collapse can not be avoided. In this article, we will try to consider in detail the following aspects of such a negative economic phenomenon as inflation: essence, causes, types.

The term denoting this phenomenon originates from the Latin word "inflatio", which in Russian means "swelling" or "swelling". The fact is that the very essence of inflation consists in the long and rather rapid depreciation of money caused by excessive and unreasonable increase in the amount of cash and non-cash funds in circulation. That is, the money supply circulating is "swelled up" and "swells". And this "swelling" leads to a colossal imbalance in the economy - an imbalance of supply and demand.

Briefly, the essence of inflation can be described by such a scheme: money emission - depreciation of money - price increase - issue. That is, the release of a large amount of paper money, unsecured by a stock of gold in the state treasury, causes their depreciation and, consequently, a continuous increase in prices. Growing prices require a lot of money, which leads to a shortage of money in circulation and, further, to the next paper money issue. And this coma increases in size, dragging the state into a deep economic hole.

It should be noted that inflation is characteristic for the circulation of paper money, in the conditions of real values (gold or silver) it is simply impossible. In itself, this economic phenomenon can not be called a product of the modern economy. Returning to the events of the historical prescription, it is worth noting that such processes are generally characteristic of an unstable economy: during periods of wars, revolutions, crisis phenomena, in the transition from one economic management system to another, etc. Inflation, the essence of which is fully manifested in these cases, is caused by the violation of the law of monetary circulation because of the financing of state expenditures by issuing paper money.

It is incorrect to identify the essence of inflation only with an increase in prices. This socio-economic phenomenon is much more complicated. In addition, inflationary processes are possible without increasing prices, when there is a devaluation of money, for example, in the case of a commodity deficit, in the case of fixing the value of goods by the state. At the same time, there is no real reduction in the value of the monetary unit, but the monetary incomes of the population are depreciating, as there is no possibility to spend savings on the purchase of scarce items. An increase in the volume of such "forced" savings leads to the formation of an "inflationary overhang", under the influence of which the state decides on a planned increase in prices. That is, in the violation of the balance of commodity-money relations, the economy of the state is experiencing the emergence of inflation and its grave consequences.

There are three main types of inflation, depending on the rate of price growth:

• Moderate or creeping (up to 10% per year);
• Galloping (from 20% and up to 200% per year);
• Hyperinflation (more than 200% per year).

The main reasons for the growth of the money supply, initiating inflationary processes:

• Imbalance of state revenues and expenditures, namely, budget deficit;
• Excessive investment, leading to excessive production of one type of product and the deficit of another;
• Military expenditures of the state;
• Social and political extraordinary circumstances, like strikes, political instability, etc .;
• Mistakes in the conduct of such state policies as price, tax, budget, credit and money.

Thus, the essence of inflation, as a multifactorial phenomenon, lies in any processes of depreciation of money, price increases and the increase in the money supply.