The definition, types, consequences, and measures of inflation

Inflation refers to the situation of currency depreciation and price rise caused by the issuance of banknotes exceeding the amount of money needed in commodity circulation. Inflation is a unique social and economic phenomenon under the circulation conditions of banknotes.

reason

Banknotes are a pure currency symbol, without value, but instead of metal currency to perform the function of means of circulation; the circulation of banknotes should be limited to the amount of metal currency needed in circulation. If the circulation of banknotes exceeds the amount of metal currency needed in circulation, the banknotes will depreciate and prices will rise. Therefore, the devaluation of currency and the rise in prices caused by the excessive issuance of banknotes are a direct cause of inflationreason。

feature

① Paper money depreciates sharply due to excessive issuance. When the amount of metal money required in circulation has been determined, the more paper money is issued, the less metal money can be represented by a unit of paper money, and the greater the degree of depreciation of paper money. The degree of depreciation of paper money, that is, the calculation formula of the depreciation rate of paper money, is: the depreciation rate of paper money = (1-) × 100%

For example, the amount of metal currency needed in circulation in a country at a certain period is 10 billion yuan, and the actual paper money issued is 20 billion yuan, and the paper money depreciation rate is 100%.

② Prices rise across the board due to the devaluation of banknotes. The higher the devaluation rate of banknotes, the higher the price increase rate. The calculation formula for the price increase rate is: price increase rate = (-1) × 100%.

For example, the amount of metal currency required in a country's circulation during a certain period is 10 billion yuan, the actual paper money issued is 20 billion yuan, and the price increase rate = (-1) × 100% = 100%.

type

① Demand-led inflation. Excessive growth in aggregate demand exceeds the total supply of goods at the current price level, causing general price increases. Excessive growth in aggregate demand is manifested as the continuous increase in the money supply exceeding the supply of social goods due to investment inflation and consumption inflation, so it is also called excess demand inflation.

② Cost-pushing inflation. Prices generally rise due to rising costs. The factors that lead to rising costs are the increase in material consumption, and the increase in wages exceeds the increase in labor productivity.

③ Structural inflation. A general rise in prices due to structural imbalances in the socio-economic sector. thistypeInflation is generally more prominent in developing countries. It is mainly manifested in three situations: first, there is too much demand for some domestic sectors, or even some key bulk products, but the supply is insufficient, resulting in a sharp rise in prices, and only rising but not falling, which then spreads to the prices of products in other sectors, thus causing the general price level to continue to rise; second, the development of labor productivity in various domestic sectors is unbalanced, resulting in the growth of monetary wages in sectors where labor productivity has increased rapidly, and the monetary wages in other sectors will also increase, causing prices to rise, thus causing the general price level to rise; third, the prices of products in open economic sectors, when they tend to rise due to the influence of the international market price level, will affect the non-open economic sectors, resulting in the increase in the general price level.

④ Input inflation. A general increase in domestic prices caused by an increase in the price of imports. ThistypeIt usually occurs in the context of worldwide inflation and spreads internationally through international trade, multinational companies, and open economic sectors.

Inflation suppression. When there is a situation in the market where the total supply is less than the total demand, or there is a structural imbalance between supply and demand, the state forcibly restrains the stability of the overall price level by controlling prices and commodity quota rationing. This is an inflation phenomenon that actually exists but does not occur.

consequences

From different perspectives, the effects of inflation on the development of a country's national economy are: ① The impact on economic development. Inflation causes prices to rise, which distorts price signals and easily leads producers to go astray in production, leading to blind development of production, causing abnormal development of the national economy, deforming the industrial structure and economic structure, thus leading to the imbalance of the proportion of the entire national economy. When the deformity of the economic structure caused by inflation needs to be corrected, the state will inevitably take various measures to suppress inflation, which will lead to a significant decline in production and construction, and a contraction of the economy. Therefore, inflation is not conducive to the stability and coordinated development of the economy. ② The impact on income distribution. Inflationary currency depreciation causes the living standards of some residents with lower incomes to continue to decline, making it difficult for the general population to improve their living standards. When inflation persists, it may cause social unrest and unrest. ③ Impact on foreign economic relations. Inflation will reduce the export competitiveness of domestic products, causing an outflow of gold foreign exchange reserves, thereby devaluing the exchange rate.

Measures to curb inflation

The main measures to control inflation in Western countries are generally deflation and income policies. Deflation is the withdrawal of an excess of paper money from circulation, usually by:

① Increase taxes.

② Increase the discount rate and reduce the total amount of credit.

Inflation is suppressed by these measures by restraining aggregate demand so that it is close to aggregate supply. Income policy is mainly used to restrain inflation by restricting the rise of wages and prices, mainly by:

① Issue price guidelines.

② Use tax cuts and other means to stimulate enterprises to implement low prices.

③ Compulsory control or management of wages and prices. In the process of economic development in Western countries, the adoption of these measures has to a certain extent suppressed inflation; however, since the purpose of the measures taken by capitalist countries is not to fundamentally suppress or eliminate inflation, but only to use it as a means of state monopoly capitalist regulation of inflation; therefore, the result is not only unable to truly suppress or eliminate inflation, but on the contrary, it further exacerbates inflation.