Inflation is a process of the general level of price increases and a decrease in the purchasing power of money, leading to the redistribution of national income. In a modern economy, inflation is generated by a number of factors.
First, due to the wrong monetary policy of the central bank, an excess amount of money, not backed by goods, appears in circulation. If the state seeks to push production by resorting to economically unjustified emission of money, then there is a high probability that the excess supply will unbalance the money market. Instead of protecting the economy from inflation, the Central Bank, on the contrary, will accelerate the development of the inflationary process. Another cause of inflation is the budget deficit. In this case, its rates depend on the organization of covering the budget deficit. Where the budget deficit is covered by an increase in the money supply, inflation is inevitable. Inflation could also be caused by covering the budget deficit with short-term government loans from the central bank. Let's say the government borrows a certain amount from the bank and pledges to return it with interest in a year. A year later, it repaid the loan and received a new loan, but this situation repeats from year to year. So there is a credit issue, causing the swelling of the money supply and giving rise to inflation. These causes of inflation are monetary. Overinvestment is also considered to be similar causes of inflation, when the volume of investment exceeds the volume of the economy, outstripping the growth of wages in comparison with the growth of production and labor productivity. The structural causes of inflation include the deformation of the national economic structure, accompanied by a lag in the development of consumer demand sectors, a decrease in the efficiency of capital investments and restraint of consumption growth, and imperfection of the economic management system. Another reason for inflation is the high level of monopolization of the economy. Since the monopoly has unlimited power in the market, it is able to influence prices, which means that monopolization contributes to the development of inflation, which began for other reasons.
