Tip 1: What is galloping inflation

Finance

Tip 1: What is galloping inflation

Inflation or higher prices for goods and services can be classified for various reasons. Based on the rate of price growth, creeping, galloping and hyperinflation are distinguished.

The concept of galloping inflation

Today there is no unambiguous definitiongalloping inflation. Some experts mean under it a spasmodic increase in prices, others - inflation with growth rates of not less than 10-20%. And there is not a single point of view among economists about which rates of price growth should be characterized by galloping inflation. Some call the numbers 20%, 50%, 100%. Other economists believe that they can reach 200%. Galloping inflation occupies an intermediate position between moderate and hyperinflation. Moderate inflation is normal for a market economy, the annual price increase in this case is about 3-5%. Unlike moderate inflation, hyperinflation is difficult to control. Hyperinflation occurs during crisis moments and in the process of transformation or radical break-up of the economic structure. It implies a sharp rise in prices higher than 100%. Almost all states passed through galloping inflation. Often it is accompanied by crisis phenomena in the economy, or a radical break-up of the economic structure. In many countries, it was noted in the post-war years (1945-1952), another wave of its spread occurred in the 1970s, when the price of oil sharply increased.

Characteristic features of galloping inflation

Since the generally accepted quantitative criteria forwhich inflation can be defined as galloping, there is, then it remains to use the qualitative characteristics of this phenomenon. The peculiarity of galloping inflation lies in the fact that risks with long-term contracts are growing with it. the currency depreciates. Therefore, during this period, deals are concluded in a more stable currency, or in them a potential price increase is pawned. For example, with galloping inflation in Russia in the 1990s, prices for goods and services were indicated in dollars. Another characteristic of galloping inflation is that inflationary expectations play an important role in its spread. At the same time, the increase in prices is accompanied by an increase in costs, which hinders economic growth due to rising costs. With galloping inflation, the population seeks to preserve their own funds and seeks to convert them as quickly as possible into reliable ways of investing. For example, in real estate or, if inflation is accompanied by devaluation, into the currency. But the volume of deposits in national currency with galloping inflation is falling, despite ultra-high interest. At the same time, banks refuse to issue loans at a fixed interest, so the credit market is in a state of stagnation, because Borrowers prefer not to use such loans. Can inflation be regarded as galloping in Russia? The answer to this question will depend on which graduation to adhere to. If we take as the basis rates of price growth, then in 2005 inflation was already observed with rates higher than 10%. It is likely that in 2014 it will also be at a fairly high level. But deposits remained stable, loans were issued at a fixed rate, so for formal reasons inflation can not yet be called galloping.

Tip 2: Inflation: the concept, the level of inflation, its types

Inflation is the situation in which the channelsmoney circulation are overflowing with the money masses. There is such a situation in the growth of prices for goods. Such a problem is quite important in the economy, since its consequences can seriously affect the economic security of the state.

Concept and types

Inflation is the process by whichthe monetary unit depreciates, and the prices for goods increase at times. Due to many global factors, such as changes in pricing processes, complexity in production structures, reduction in price competition and other inflation, it is part of the market economy. The prerequisite for inflation is the dynamics of price increases, and one of the main reasons for its occurrence is the increase in public spending and budget insufficiency. There are three types of inflation - moderate, galloping and hyperinflation. Moderate inflation is also called creeping inflation. It manifests itself in a relatively small increase in prices. Some analysts believe that this kind of inflation is even useful and has a favorable effect on the development of the economy, because its moderate pace allows the money to maintain a stable value. The second type of inflation can create a significant strain on the economy, however, even in that case prices can be predicted. Its beginning is manifested in the growth of the money supply, which is ahead of the price increase. At a time when galloping inflation reaches its main stage, barter deals begin to flourish. In the conditions of hyperinflation for the year, prices can increase by 300% or even more. It is the cause of the loss of money by its price and its cumulative function.

The rate of inflation

Changes in prices during any particularperiod, expressed as a percentage, reflect the level of inflation. It can vary with the change in the purchasing power of money. The normal value of the inflation rate in a developed market economy is the growth rate of 2 to 5% per year. The level of inflation can increase sharply in case of growth of non-production costs of the state, the appearance of a commodity deficit or insufficient funds in the state budget. Three indices are used to measure inflation: the index of wholesale prices, consumer prices, and the GDP deflator. The first displays the total turnover of wholesale trade during the year, excluding sales at retail. The second is the ratio of the prices of the consumer basket of the current year to the prices of the base year. The GDP deflator is an indicator of the average level of prices for services and goods, of which the gross national product is being formed.