What Is The Difference Between Devaluation And Inflation

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What Is The Difference Between Devaluation And Inflation
What Is The Difference Between Devaluation And Inflation

Video: What Is The Difference Between Devaluation And Inflation

Video: What Is The Difference Between Devaluation And Inflation
Video: ๐Ÿ“‰๐Ÿ“ˆ Inflation and Deflation | A Hidden Tax 2024, March
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Inflation and devaluation are two interrelated in a sense, but at the same time completely different economic concepts. To better understand their essence, you need to understand how these processes affect the life and financial well-being of the population.

What is the Difference Between Devaluation and Inflation
What is the Difference Between Devaluation and Inflation

Inflation and devaluation concepts

Devaluation of a currency is a rapid and long-term depreciation of its exchange rate in relation to the exchange rate of another currency (or others). Here you should understand the difference between small fluctuations in the exchange rate and a significant change in the value of the currency. For example, if during the week the ruble exchange rate against the dollar fluctuated between 33.8 rubles, 33.2 rubles. and finally stopped at the level of 33.4 rubles, then in this case devaluation is out of the question. But if half a year ago the dollar cost, for example, 25 rubles, a month ago - 33 rubles, and today - 32 rubles, then quite confidently these changes can be denoted by the word "devaluation".

In a sense, inflation is a more complex concept, but if you do not delve into economic theories, then it can be briefly described as an increase in consumer prices. In other words, this is a decrease in the value of money, when after a while for the same amount you can buy much less goods or services.

How these processes affect life

By and large, if a person keeps his savings in rubles and then he is also going to spend them in rubles, then for him the devaluation of the ruble has practically no meaning. In this case, one cannot talk about losses from rate jumps. Of course, if you knew about the growth of the dollar in advance, you could use your savings and increase them. But here, rather, there is a lost profit.

Inflation is hitting the people's wallet much more, although not so noticeably. It is the depreciation of money that leads to the fact that every day the consumer wallet is getting smaller and smaller. Thus, the level of well-being of the population directly depends on the level of inflation.

The relationship between devaluation and inflation becomes obvious if you look at these processes from the perspective of foreign trade. Goods that are imported into the country are purchased in international currency. Naturally, if the level of devaluation of the national currency is high, then importers suffer losses, which then, in turn, they shift onto the shoulders of the final consumer - the people. This is happening again due to price increases.

This problem is less perceptible in those areas where the national industry is strong. Importers cannot afford a sharp increase in prices for their product, otherwise they will not be able to withstand competition with a national manufacturer. As a result, they are forced to take the increase in costs on themselves, thus reducing their profits. But, be that as it may, devaluation, of course, sooner or later, becomes one of the reasons for the rise in inflation.

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